Insights into the Ex-Dividend Behavior of Stock Prices : Evidence from a Frontier Market with Varying Tax Regimes

This paper adds to the literature on the behavior of stock prices around the ex-dividend date by providing evidence on the behavior of stock returns and trading volumes around the ex-dividend date in the unique environment of the Jamaica Stock Exchange. The Jamaica Stock Exchange is characterized by two major changes to the dividend tax rate in recent years and the absence of any capital gains tax, short selling or market makers. Using the event-study methodology ,the paper finds that changes in the dividend tax rate produces major changes in the price drop ratio and abnormal returns in one instance but not in the other, while trading volumes increase around the ex-dividend date regardless of the tax regime. These results suggest that while tax differentials between capital gains and dividends can play a major role in the ex-dividend behavior of stock prices, it may not provide a complete explanation of such