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Price and Volume Behavior around the Ex‐dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and their Underlying Australian Stocks *
Author(s) -
JUN AELEE,
ALAGANAR V. T.,
PARTINGTON GRAHAM,
STEVENSON MAX
Publication year - 2008
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/j.1468-2443.2008.00073.x
Subject(s) - dividend , financial economics , economics , stock (firearms) , dividend tax , monetary economics , dividend yield , imputation (statistics) , business , dividend policy , finance , tax reform , market economy , mechanical engineering , machine learning , missing data , computer science , gross income , engineering , state income tax
Australian residents are tax‐advantaged, relative to American investors, in their access to imputation tax credits on Australian stocks. This paper provides evidence consistent with a difference in dividend valuations between Australian stocks and their American Depositary Receipts (ADRs). The ex‐dividend drop‐off ratio is lower for ADRs relative to their underlying Australian stocks and this difference is most pronounced for stocks that have imputation tax credits and high dividend yields. Consistent with dividend capture trading in the Australian market, the difference in drop‐off ratios is driven by both temporarily higher Australian cum‐prices and temporarily lower Australian ex‐prices. Abnormal trading volume about the ex‐day is present in both markets and in the Australian market the abnormal volume is greater for dividends with imputation tax credits. Dividend‐related trading leads to price differences across the markets on the ex‐dividend day. Price differences are also observed when the stock and the ADR trade with different dividend entitlements due to different ex‐dividend dates.