Stock-market behavior on ex-dates: New insights from German stocks with tax-free dividend

We examine stock prices and the number of stocks traded around ex-dividend dates of German stocks with tax-free dividend. Tax-free dividends are temporarily tax-exempt, as they reduce the initial purchasing price of a stock. With our analysis of this particular group of German stocks, we can make clear predictions regarding ex-date prices and analyze the number of stocks traded around ex-dates, doing so without the systematic bias of cum-ex trades over time. For XETRA, our empirical results indicate that ex-date prices decline, on average, by the amount of the dividend. We do not find a significant relationship between a stock's price-drop ratio and dividend yield. Further, the empirical analysis suggests that there is no significant correlation between an abnormal number of a stock being traded and its dividend yield. These results are most consistent with tax-motivated reasoning. However, our volume analysis reveals no consistency regarding the abnormal number of stocks traded for multilateral trading facilities.