TY - JOUR
T1 - Investigation of the costly-arbitrage model of price formation around the ex-dividend day in Norway
AU - Dai, Qinglei
AU - Rydqvist, Kristian
PY - 2009/9/1
Y1 - 2009/9/1
N2 - We estimate the costly-arbitrage model of Boyd and Jagannathan [Boyd, John, and Jagannathan, Ravi, 1994, Ex-Dividend Price Behavior of Common Stocks, Review of Financial Studies 7, 711-741.] using Norwegian stock market data. Taxable distributions take place at two separate dates, one that entails the distribution of an imputation-tax credit and another the distribution of the cash dividend. We find that the costly-arbitrage model is consistent with observed stock returns around the ex-dividend day, but the model cannot explain the return patterns around the distribution of the tax credit. We conclude that uncertainty about the cash flows prevents arbitrage.
AB - We estimate the costly-arbitrage model of Boyd and Jagannathan [Boyd, John, and Jagannathan, Ravi, 1994, Ex-Dividend Price Behavior of Common Stocks, Review of Financial Studies 7, 711-741.] using Norwegian stock market data. Taxable distributions take place at two separate dates, one that entails the distribution of an imputation-tax credit and another the distribution of the cash dividend. We find that the costly-arbitrage model is consistent with observed stock returns around the ex-dividend day, but the model cannot explain the return patterns around the distribution of the tax credit. We conclude that uncertainty about the cash flows prevents arbitrage.
KW - Costly-arbitrage model
KW - Estimation risk
KW - Ex-dividend day
KW - Imputation-tax credit
KW - Legal risk
KW - Withholding tax
UR - http://www.scopus.com/inward/record.url?scp=67650453415&partnerID=8YFLogxK
U2 - 10.1016/j.jempfin.2009.04.001
DO - 10.1016/j.jempfin.2009.04.001
M3 - Article
AN - SCOPUS:67650453415
SN - 0927-5398
VL - 16
SP - 582
EP - 596
JO - Journal Of Empirical Finance
JF - Journal Of Empirical Finance
IS - 4
ER -