Ex-Day Behaviour: Tax or Short-Term Trading Effects

Posted: 4 Nov 1998

See all articles by Meziane Lasfer

Meziane Lasfer

Bayes Business School, City, University of London

Date Written: January 1995

Abstract

This study examines the behaviour of share prices around the ex-dividend dates before and after the introduction of the 1988 Income and Corporation Taxes Act (ICTA) that changed substantially the tax differential between dividends and capital gains in the UK. Moreover, after accounting for the settlement day effect, we find that in the pre-1988 period when the differential taxation of dividends and capital gains is high, ex-day returns are positive and significant. In contrast, in the post-1988 period, ex-day returns are, in most cases, negative and insignificant. Further analysis reveals that, while ex-day returns are significantly related to dividend yield and to the length of the settlement period, they are not affected by the commonly used measures of transaction costs, such as the bid-ask spread and trading volume, or by the day of week, month of the year, type of dividend distribution or number of days to the actual receipt of the cash dividend. We conclude that taxation affects significantly ex-day share prices in the UK.

JEL Classification: G35

Suggested Citation

Lasfer, Meziane, Ex-Day Behaviour: Tax or Short-Term Trading Effects (January 1995). Cass Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=6193

Meziane Lasfer (Contact Author)

Bayes Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
Great Britain
+44 20 7040 8634 (Phone)
+44 20 7040 8881 (Fax)

HOME PAGE: http://https://www.bayes.city.ac.uk/faculties-and-research/experts/meziane-lasfer

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,203
PlumX Metrics