Ex‐dividend Day Pricing in New Zealand

Abstract

Controversy continues over the question of tax clientele effects in the pricing of shares that pay dividends. The empirical results remain inconclusive, with variations in testing methods and sample formation the probable causes of much of the variation in outcomes. This study focuses on testing for the presence of a tax clientele effect consistent with prior tests for the same effect using a sample from a particular tax regime period in New Zealand in which companies could pay either or both taxable and non-taxable dividends. The results are generally consistent with the presence of a tax clientele effect in the New Zealand market for the time period, while providing essentially no support for the short term trading hypothesis.

Cross-autocorrelation in the New Zealand stock market

“…In this article, we compute equalweighted returns of a portfolio by averaging the non-missing returns of the stocks in the portfolio. The effect of non-synchronous trading on crossautocorrelations is minimized by excluding returns of any stock that did not trade on date t or t À 1 from the computation of portfolio returns on date t. Bartholdy and Brown (1999) point out that the New Zealand stock market is composed of firms with extreme asset size differentials. In this article, we rank the firm sizes in descending order and define the first 15% of the firms as the Large Firms and divide the rest 85% of the firms equally into three groups: Medium Firms, Small Firms and Tiny Firms.…”

The investor recognition hypothesis: the New Zealand case

“…The NZ stock market is among those developed markets which exhibit significant HVRP. Bartholdy and Brown (1999) point out that the NZ stock market is composed of firms with extreme asset size differentials. Chin et al (2002) note that NZ represents only 0.4% of the world equity.…”

Testing for Multiple Types of Marginal Investor in Ex-Day Pricing

“…The first type of marginal investor, often referred to as long term investors, faces different taxes on dividends and 1. Elton and Gruber (1970), Eades et al (1984), Brown and Walter (1986), Chui et al (1992), Barclay (1987), Robin (1991), Michaely (1991), Hearth and Rimbey (1993), Michaely and Murgia (1995) and Bartholdy and Brown (1999).…”

“…The results support a separating equilibrium with two types of marginal investors: a long term investor and a mixed trader. Bartholdy and Brown (1999) use an equivalent dataset to test for tax effects in New Zealand but do not take into account the timing of payment of taxes that in some circumstances can be up to two years after receiving the dividends, nor that different marginal investors may affect trades in different stocks.…”