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The Ex‐dividend Day Behaviour of REITs: Tax or Market Microstructure Effects
Author(s) -
John Kose,
Mateti Ravi S.,
Nguyen Duong,
Vasudevan Gopala
Publication year - 2016
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12093
Subject(s) - dividend , economics , monetary economics , market microstructure , stock (firearms) , tick size , financial economics , econometrics , market liquidity , finance , mechanical engineering , order (exchange) , engineering
We examine the importance of the tax and microstructure theories in explaining the ex‐dividend day behaviour of US REIT stock prices in three tick size regimes − the 1/8 th , 1/16 th , and decimal eras. We present a new theory that shows how the tax and microstructure effects interact to produce the observed ex‐dividend day behaviour. Our theory also shows why in an era of a large tick size, as in the 1/8 th era, the tax effects fail to get detected and the observed ex‐dividend day behaviour could be misinterpreted as resulting solely from the microstructure effects.