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Effects of investor tax heterogeneity on stock prices and trading behaviour around the ex‐dividend day: the case of Australia

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  • Nguyen Ngoc Anh Le
  • Xiangkang Yin
  • Jing Zhao

Abstract

Using a sample of Australian stocks during the 1996–2014 period, this study examines how tax heterogeneity between domestic and foreign investors affects trading behaviour and stock prices around the ex‐dividend day. Domestic investors prefer dividends and tend to buy stocks cum‐dividend and sell them ex‐dividend whereas foreign investors tend to trade in the opposite direction. Abnormal trading turnover increases with tax heterogeneity. Moreover, stocks with a larger domestic investor base are associated with a higher price drop‐off ratio on the ex‐dividend day and higher market value of franking credits. Overall, our findings support the dynamic dividend clientele hypothesis.

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  • Nguyen Ngoc Anh Le & Xiangkang Yin & Jing Zhao, 2020. "Effects of investor tax heterogeneity on stock prices and trading behaviour around the ex‐dividend day: the case of Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3775-3812, December.
    • Handle: RePEc:bla:acctfi:v:60:y:2020:i:4:p:3775-3812
    DOI: 10.1111/acfi.12520
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    References listed on IDEAS

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    Cited by:

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    2. Bradrania, Reza & Wu, Winston, 2023. "Foreign institutions, local investors and momentum trading," Journal of Empirical Finance, Elsevier, vol. 73(C), pages 40-64.
    3. Angel Zhong, 2022. "Institutional trading in stock market anomalies in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 893-930, March.

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