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Stock-Market Behavior on Ex-Dates: New Insights from German Stocks with Tax-Free Dividend

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  • Felix Kreidl

    (Finance and Banking, Friedrich-Alexander-Universität Erlangen-Nürnberg, 90403 Nürnberg, Germany)

Abstract

We examine stock prices and the number of stocks traded around ex-dividend dates of German stocks with tax-free dividend. Tax-free dividends are temporarily tax-exempt, as they reduce the initial purchasing price of a stock. With our analysis of this particular group of German stocks, we can make clear predictions regarding ex-date prices and analyze the number of stocks traded around ex-dates, doing so without the systematic bias of cum-ex trades over time. For XETRA, our empirical results indicate that ex-date prices decline, on average, by the amount of the dividend. We do not find a significant relationship between a stock’s price-drop ratio and dividend yield. Further, the empirical analysis suggests that there is no significant correlation between an abnormal number of a stock being traded and its dividend yield. These results are most consistent with tax-motivated reasoning. However, our volume analysis reveals no consistency regarding the abnormal number of stocks traded for multilateral trading facilities.

Suggested Citation

  • Felix Kreidl, 2020. "Stock-Market Behavior on Ex-Dates: New Insights from German Stocks with Tax-Free Dividend," IJFS, MDPI, vol. 8(3), pages 1-21, September.
    • Handle: RePEc:gam:jijfss:v:8:y:2020:i:3:p:58-:d:416711
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    References listed on IDEAS

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