Investigating Short-Term Trading Returns Around The Ex Dividend Date: A Test for Market Efficiency
Abstract: This study tests the efficiency of the Swedish and the Dutch stock markets by analyzing the performance of two dividend strategies – dividend capturing and dividend timing. To test these strategies and what factors influence them, the researchers collect a sample of 95 different firms, about half from each country and a total of over 8 000 dividend observation. A cross sectional regression is run for serval short term holding periods and repeated for the years 2012-2016. The results show that market efficiency does not hold on the country level as the return between the strategies differs, but it does seem to be maintained on an international scale. The thesis shows that the dividend yield and the home country’s tax system have the greatest impact on a difference between the two strategies. This result is consistent over time. Evidence is also found for increased trading around the ex-dividend date. This study contributes to the literature, by testing market efficiency in regards to dividends for the Swedish and the Dutch stock markets. It provides further guidance for investors on what to look for when trying to decide between a dividend capturing and a dividend timing strategy as well as it tries to explain what impacts dividend returns.
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