Stock Market Behavior on Ex-Dividend Dates: The Case of Cum-Ex Transactions in Germany
This paper explores withholding-tax noncompliance involving stock trades around ex-dividend days, or so-called "cum-ex" trades. As we show in this paper, if a stock market equilibrium is characterized by a lack of further arbitrage opportunities for German institutional investors, cum-ex trades can only be profitable in the presence of collusive fraud by buyer and seller. While these trades should show up in the number of stocks traded, they would not exert effects on stock market prices. The theoretical predictions are tested using daily data for major publicly traded German stocks from 2009 to 2015. The results confirm an increase in transaction numbers shortly before ex-dividend days due to cum-ex trading, however, with substantial variation in the cum-ex effect among stocks. The results also confirm the absence of significant effects on stock market prices.