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The Ex†dividend Day Behaviour of REITs: Tax or Market Microstructure Effects

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  • Kose John
  • Ravi S. Mateti
  • Duong Nguyen
  • Gopala Vasudevan

Abstract

We examine the importance of the tax and microstructure theories in explaining the ex†dividend day behaviour of US REIT stock prices in three tick size regimes − the 1/8th, 1/16th, and decimal eras. We present a new theory that shows how the tax and microstructure effects interact to produce the observed ex†dividend day behaviour. Our theory also shows why in an era of a large tick size, as in the 1/8th era, the tax effects fail to get detected and the observed ex†dividend day behaviour could be misinterpreted as resulting solely from the microstructure effects.

Suggested Citation

  • Kose John & Ravi S. Mateti & Duong Nguyen & Gopala Vasudevan, 2016. "The Ex†dividend Day Behaviour of REITs: Tax or Market Microstructure Effects," European Financial Management, European Financial Management Association, vol. 22(3), pages 341-366, June.
    • Handle: RePEc:bla:eufman:v:22:y:2016:i:3:p:341-366
    DOI: 10.1111/eufm.12093
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    References listed on IDEAS

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