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

  • Michaely, Roni

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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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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