Researcher ORCID Identifier


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Date of Submission


Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts



Reader 1

Professor Eric Hughson

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This paper analyzes ex-dividend day price drops and their relationship with dividend and capital gains tax rates across multiple exchanges from 1965 to 2020. In accordance with Elton and Gruber’s (1970) tax theory, I hypothesize that the price drop should reflect the post-tax value of dividends relative to the post-tax value of long-term capital gains for the marginal individual investor across all exchanges and periods, except in the pre-1997 NASDAQ events. Furthermore, I posit that after the Jobs and Growth Tax Relief Reconciliation Act of 2003, the average ex-dividend day price drop should be on par with the full dividend amount. I ultimately find that while the extent of the price drop significantly correlates with the relative individual tax rates on dividends and capital gains across the entire NYSE and AMEX period and post-1997 NASDAQ events, the association is weaker than expected in the NYSE and AMEX subsets and stronger than expected in the post-1997 NASDAQ events. This suggests that factors I was unable to control for are likely important in driving the extent of the price drop. Additionally, the results do not indicate that the average price drop is equal to the dividend after the Jobs and Growth Tax Relief Reconciliation Act of 2003. While the extent of the price drop appears to correlate with the tax rates on dividends relative to the tax rates on capital gains under certain periods, the relationship is weaker than Elton and Gruber’s theory suggests and is not conclusive across all samples.

This thesis is restricted to the Claremont Colleges current faculty, students, and staff.