This paper analyzes the relationship between tax heterogeneity and the behavior of stock prices and trading volume around the ex-dividend day within an equilibrium framework. We conclude that, even in a world without transaction costs, the price drop on the ex-day need not be equal to the...

This paper analyzes the relationship between tax heterogeneity and the behavior of stock prices and trading volume around the ex-dividend day within an equilibrium framework. We conclude that, even in a world without transaction costs, the price drop on the ex-day need not be equal to the...

We test a theory of the interaction between investors' heterogeneity, risk, transaction costs, and trading volume. We take advantage of the specific nature of trading motives around the distribution of cash dividends, namely the costly trading of tax shields. Consistent with the theory, we show...