Taxes and Ex-Dividend Day Returns: Evidence From REITs
The distributions of Real Estate Investment Trusts (REITs) are comprised of components that differ in how they are taxed to the recipient shareholders. This variation in tax characteristics enables us to study the effect of shareholder taxes on stock prices around ex-dividend days, while avoiding the problems associated with non-tax confounding factors and intertemporal tests that have hampered the interpretation of previous studies. Using a dataset that includes the component makeup of individual REIT distributions, we provide evidence that abnormal returns and trading volume around ex-dividend days are driven by the component of the distributions that is most tax-penalized. Our results support a tax-based explanation for ex-dividend day pricing and investor trading behavior.
Volume (Year): 62 (2009)
Issue (Month): 4 (December)
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