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Cum-Ex Trading – The Biggest Fraud in History?

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Abstract

In this paper, we analyse the extent of cum-ex trading in European markets. Based on abnormal trading volume, the estimated total tax loss due to illicit tax refunds of withholding tax on dividends amounts to approximately €10bn. We find that cum-ex trading is positively correlated with dividend yield, which is consistent with maximising returns from this strategy. Our results are robust, controlling for confounding effects and investors’ tax heterogeneity. Relatively modest changes of how withholding taxes are administered help to prevent cum-ex trading. However, panel regressions indicate that it may still persist in some countries.

Suggested Citation

  • Moritz Wagner & Xiaopeng Wei, 2020. "Cum-Ex Trading – The Biggest Fraud in History?," Working Papers in Economics 20/19, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:20/19
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    More about this item

    Keywords

    Tax fraud; tax trading; cum-ex trading; dividend arbitrage; dividend stripping; abnormal trading volume;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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