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The Ex‐Day Price Behavior of REITs: Taxes or Ticks?
Author(s) -
Whitworth Jeff,
Carter David A.
Publication year - 2010
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/j.1540-6229.2010.00281.x
Subject(s) - economics , dividend , real estate investment trust , dividend yield , stock (firearms) , financial economics , monetary economics , ex ante , econometrics , dividend policy , real estate , macroeconomics , finance , mechanical engineering , engineering
Taxes and microstructure constraints are often cited as possible explanations for why stock prices drop by less than the dividend on their ex‐dates. Using a sample of real estate investment trusts, which have no significant correlation between dividend size and yield, we find that close‐to‐open ex‐dividend price drops are related to dividend size as suggested by the microstructure models, but close‐to‐close price drops are related to dividend yield as predicted by the tax theory. These results imply that overnight price drops are primarily determined by microstructure, but that trading during the ex‐day causes prices to adjust to reflect individual tax preferences.