A microstructure analysis of ex-dividend stock price behavior before and after the 1984 and 1986 Tax Reform Acts
Article Abstract:
The consequences of the 1984 and 1986 Tax Reform Acts were investigated using bid and ask quotations to differentiate buying from selling, to include the bid-ask spread component of transaction costs and to enhance the measurement of ex-dividend price declines. Quotations data for ex-dividend dates of ordinary cash dividends between 1983 and 1988, which span the two reform acts, were used for the study. Results for long-term investors showed that marginal price declines increase relative to the dividend amount during the 1983-1988 timeframe, which is consistent with forecasts based on the elimination of favorable capital gains tax rates. Tax-neutral short-term traders at observed prices cannot profit from ex-dividend price declines if they get the full bid-ask spread as a marginal transaction cost. Corporate dividend capture traders can take advantage of profit opportunities during 1983, which were removed by 1988.
Publication Name: The Journal of Business
Subject: Business, general
ISSN: 0021-9398
Year: 1996
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Futures contracting and dividend uncertainty in experimental asset markets
Article Abstract:
Prices in laboratory stock markets tend to soar and then plunged to dividend value when the asset's useful life is over. It is hypothesized that this bubble-and-crash behavior is caused by the inability of participants to develop reliable future price expectations or by dividend risk aversion. Two series of experiments are performed to test these propositions. In the first experimental series, participants are given access to information on future share prices by introducing a futures market. In the second series of experiments, the per-period dividend is known. The results show that price bubbles are minimized using the futures market approach, while the certain dividend approach has no significant impact on the behavior of bubbles with inexperienced traders.
Publication Name: The Journal of Business
Subject: Business, general
ISSN: 0021-9398
Year: 1995
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