Foreign and domestic investors and tax induced ex-dividend day trading

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This paper reports evidence on the consequences of differential tax treatment for domestic and foreign owners in a market with a high degree of foreign ownership for certain stocks, the Helsinki Stock Exchange (HSE). We find that ex-dividend day ratios vary with the degree of foreign ownership, and detect significantly abnormal ex-dividend day trading volumes. The average ex-dividend price drops for high-yield, high-foreign ownership stocks are likely to lie outside no-arbitrage boundaries for domestic taxable investors. An investigation of short selling through a derivatives instrument also reveals significant excess trading volumes in ex-dividend months. The tax heterogeneity of the company's ownership structure seems to play a role in explaining deviations from dividend neutrality, more deviations are observed for companies with a more homogeneous ownership structure in terms of taxation.
Original languageEnglish
Peer-reviewed scientific journalJournal of Banking & Finance
Issue number9
Pages (from-to)1687-1716
Number of pages30
Publication statusPublished - 2001
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management
  • ex-dividend day
  • foreign investors
  • tax arbitrage
  • dividends
  • taxation
  • foreign owners


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