Skip Nav Destination
1-1 of 1
Follow your search
Access your saved searches in your account
Would you like to receive an alert when new items match your search?
Marginal Stockholder Tax Effects and Ex-Dividend-Day Price Behavior: Evidence From Taxable Versus Nontaxable Closed-End Funds
Publisher: Journals Gateway
The Review of Economics and Statistics (2005) 87 (3): 579–586.
Published: 01 August 2005
AbstractView article PDF
Almost all research on the movement of stock prices on ex-dividend days has found that prices decline by less than the dividend. Though this is consistent with tax effects, several papers have argued that this phenomenon could be caused by market microstructure effects. In this paper we make use of a natural experiment that provides support for the tax explanations of ex-dividend behavior. Some closed-end funds have taxable, and some have nontaxable, dividend distributions. Both types are subject to taxes on capital gains. The implication of this for ex-dividendday price behavior is very different between these two types of funds if taxes matter. This paper demonstrates that the direction of ex-dividendday price behavior is consistent with a tax explanation and that ex-dividend-day price behavior changes, as theory would suggest, with changes in the tax law.