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Taxes and Foreign Investors ’ Trading Behavior around Ex-dividend Days

By Yun-lan Tseng and Shing-yang Hu

Abstract

around Ex-dividend Days Employing Taiwan data, this paper tests the tax hypothesis versus the short-term trading hypothesis by making a comparison in trading behavior between tax disadvantaged foreign investors and tax-neutral domestic institutions around ex-dividend days. We observe that not only do foreign investors abnormally buy more before the ex-date and sell more on the ex-date like domestic institutions, who are capturing capital gains around the ex-date, but there is a significant paired difference attributed to taxes in order imbalances between the two types of investors before the ex-date. Hence, our evidence supports both the short-term trading hypothesis and the tax hypothesis

Topics: ex-date, tax, short-term arbitrage, foreign investor, trading behavior
Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.192.7295
Provided by: CiteSeerX
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