FIN-02-047 |
NYU Stern School of Business |
Marginal Stockholder Tax Effects
and Ex-Dividend Day Behavior-Thirty-Two Years Later
October 2002
Edwin J. Elton, Martin J. Gruber and Christopher R. Blake
ABSTRACT
In 1970 Elton and Gruber (hereafter E&G) started an industry by studying the impact of
taxes on investor decisions using the behavior of share prices around the ex-dividend date. E&G
showed that if taxes enter investors’ decisions, then the fall in price on the ex-dividend day
should reflect the post-tax value of the dividend relative to the post-tax value of capital gains on
that day. Because dividends in most time periods are taxed more heavily than capital gains, the
theory suggests that if taxes affect investor’s choices, the fall in stock price should in general be
less than the dividend.
Edwin J. Elton
Institution: Stern School of Business, New York University, 44 West 4th Street, New York, NY 10012
Telephone: (212) 998-0361
Fax: (212) 995-4233
Email: eelton@stern.nyu.edu
Homepage:http://www.stern.nyu.edu/~eelton
Martin J. Gruber
Institution: Stern School of Business, New York University, 44 West 4th Street, New York, NY 10012
Telephone: (212) 998-0333
Fax: (212) 995-4233
Email: mgruber@stern.nyu.edu
Homepage:http://www.stern.nyu.edu/~mgruber
Christopher R. Blake
Institution: Associate Professor of Finance, Fordham University
Email: cblake@fordham.edu
Homepage: http://www.bnet.fordham.edu/public/finance/cblake
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