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THE IMPACT OF THE 1986 TAX REFORM ON EX-DIVIDEND DAY VOLUME AND PRICE BEHAVIOR
CHUNCHI WIT, Chunchi Wu and JUNMING HSU
National Tax Journal
Vol. 49, No. 2 (June, 1996), pp. 177-192
Published by: National Tax Association
Stable URL: http://www.jstor.org/stable/41789196
Page Count: 16
You can always find the topics here!Topics: Dividends, Tax reform, Taxes, Transaction costs, Capital gains, Stock prices, Investors, Tax rates, Capital gains taxes, Prices
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This paper examines the impact of the 1986 Tax Reform Act (TRA) on trading volume and stock price behavior around the ex-dividend day. The paper 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 añer the implementation of the tax law. There is evidence that short-term traders continue to focus on high-yield stocks añer the 1986 tax reform and the magnitude of exdividend 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 © 1996 National Tax Association