Title

The Impact of the 1986 Tax Reform on Ex-Dividend Day Volume and Behavior

Publication Type

Journal Article

Publication Date

1996

Abstract

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.

Discipline

Business

Research Areas

Finance

Publication

National Tax Journal

Volume

49

Issue

2

First Page

177

Last Page

192

ISSN

0028-0283

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