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Ex-dividend Day Stock Price Behavior: The Case of the 1986 Tax Reform Act

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  • Michaely, Roni

Abstract

This paper analyzes the behavior of stock prices around ex-dividend days after the implementation of the 1986 Tax Reform Act that dramatically reduced the difference between the tax treatment of realized long-term capital gains and dividend income in 1987 and completely eliminated the differential in 1988. The author shows that this tax change had no effect on the ex-dividend stock price behavior, which is consistent with the hypothesis that long-term individual investors have no significant effect on ex-day stock prices during this time period. The results indicate that the activity of short-term traders and corporate traders dominates the price determination on the ex-day. Copyright 1991 by American Finance Association.

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Bibliographic Info

Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 46 (1991)
Issue (Month): 3 (July)
Pages: 845-59

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Handle: RePEc:bla:jfinan:v:46:y:1991:i:3:p:845-59

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Cited by:
  1. Vithessonthi, Chaiporn & Tongurai, Jittima, 2012. "The impact of capital account liberalization measures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 16-34.
  2. Fazakas, Gergely & Kosárka, Judit, 2008. "Osztalékpolitikai elméletek
    [Dividend policy theories]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 782-806.
  3. Chen, Zhijuan & Lin, William T. & Ma, Changfeng & Tsai, Shih-Chuan, 2014. "Liquidity provisions by individual investor trading prior to dividend announcements: Evidence from Taiwan," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 358-374.
  4. Sorjonen, Pasi, 2002. "Ex-Dividend Day Behavior of Stock Prices in Finland in 1989-90 and 1993-97," Discussion Papers 674, The Research Institute of the Finnish Economy.
  5. Sorjonen, Pasi, 2002. "Ex-Dividend Day Stock Price Behavior, Taxes and Discrete Prices; A Simulation Experiment," Discussion Papers 676, The Research Institute of the Finnish Economy.
  6. Leonie Bell & Tim Jenkinson, 2002. "New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor," Journal of Finance, American Finance Association, vol. 57(3), pages 1321-1346, 06.
  7. Jack Francis & Tsing Wu & Nan-Ting Kuo, 2012. "Effects of tax reform on drop-off ratios and on the ex-dividend and ex-right prices," Review of Quantitative Finance and Accounting, Springer, vol. 39(2), pages 147-164, August.
  8. Carlos Martins, 2007. "Consistency of Dividend Signalling and Future Maturity Level:Evidence from UK Data," Working Papers de Economia (Economics Working Papers) 40, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
  9. Sorjonen, Pasi, 2002. "Ex-Dividend Day Stock Returns and Tick Rules," Discussion Papers 675, The Research Institute of the Finnish Economy.
  10. Boulton, Thomas J. & Braga-Alves, Marcus V. & Shastri, Kuldeep, 2012. "Payout policy in Brazil: Dividends versus interest on equity," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 968-979.
  11. William Hardin & Gow-Cheng Huang & Kartono Liano, 2012. "Dividend Size, Yield, Clienteles and REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 45(2), pages 435-449, August.
  12. Andrei Anghel & Tudor Cristiana, 2013. "Investors' Dividend Preference On The Romanian Equity Market: A Cross-Sectional Empirical Investigation," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 61-69, December.

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