Investigation of the costly-arbitrage model of price formation around the ex-dividend day in Norway
AbstractWe estimate the costly-arbitrage model of Boyd and Jagannathan [Boyd, John, and Jagannathan, Ravi, 1994, Ex-Dividend Price Behavior of Common Stocks, Review of Financial Studies 7, 711-741.] using Norwegian stock market data. Taxable distributions take place at two separate dates, one that entails the distribution of an imputation-tax credit and another the distribution of the cash dividend. We find that the costly-arbitrage model is consistent with observed stock returns around the ex-dividend day, but the model cannot explain the return patterns around the distribution of the tax credit. We conclude that uncertainty about the cash flows prevents arbitrage.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 16 (2009)
Issue (Month): 4 (September)
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Web page: http://www.elsevier.com/locate/jempfin
Ex-dividend day Withholding tax Imputation-tax credit Costly-arbitrage model Legal risk Estimation risk;
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