Excerpt from Investors' Heterogeneity, Prices, and Volume Around the Ex-Dividend Day
Our analysis shows that unless a perfect tax clientele exists, it is not possible to infer tax rates from price alone. [by a perfect tax clientele we mean that each tax group hold different s... ecurities, and all trading is intra-group trading. See Miller and Modigliani (1961) and Elton and Gruber However, the cross-sectional distribution of tax rates can be inferred by using both price and volume data. This point can be illustrated using the following stylized example.
Assume that there are three groups of traders in the marketplace with a marginal rate of substitution between dividends and capital gains income of and respectively. Assume further that the average price drop relative to the dividend amount is Using the standard analysis, we may conclude that the second group dominates the ex-dividend day price determination. However.
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