The Impact of the 1986 Tax Reform on Ex-Dividend Day Volume and Behavior
A study examines the impact of the 1986 Tax Reform Act (TRA) on trading volume and stock price behavior around the ex-dividend day. The study shows that changes in capital gain taxes exert a differential effect on the trading volume and ex-day premiums of stocks with different yields and transaction costs. Results show that the trading volume around the ex-dividend day declines after the implementation of the tax law. There is evidence that short-term traders continue to focus on high-yield stocks after the 1986 tax reform and the magnitude of ex-dividend day premiums is directly related to their short-term trading activity. Ex-dividend day premiums and abnormal trading volume around the ex-dividend day are significantly affected by transaction costs, and these effects appear to be stronger after 1986.
National Tax Journal
WU, Chunchi and Hsu, J..
The Impact of the 1986 Tax Reform on Ex-Dividend Day Volume and Behavior. (1996). National Tax Journal. 49, (2), 177-192. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/802