Diachronic Analysis of the Impact of Arbitration on Transaction Costs: The Case of the Detachment of Dividends in France in the Period from 1990 to 2000

Abstract

There are often two competing assumptions as to the interpretation to be given to price adjustments on dividend detachment dates. The tax assumption that the adjustment reflects the tax differential between capital gains and dividends and the tax heterogeneity assumption that favors the creation of clients and the holding of high-yield securities by categories of investors with little income tax. The alternative hypothesis emphasizes arbitrages and dividend capture strategies and concludes that in equilibrium the adjustments reflect the transaction costs of arbitragists. The difference between these two hypotheses is hardly palpable. This work proposes a double contribution. Theoretically, it integrates transaction fees into a model of arbitrage between capital gains and dividends. It is therefore shown, by finding the results of customer effects and by generating new relationships between the fall in the price and transaction costs, that the two hypotheses do not generate contradictory results and respond to the existence of two different tax systems on the Monthly Settlement (RM) and on the Cash. Empirically, it proposes, on the one hand, a measure of implicit transaction costs using the range, based on daily data observed around dividend detachment dates and, on the other hand, it highlights a statistic that reflects the tax differential in the markets. Finally, a study of the volumes offered and requested reinforces the idea that the existence of transaction costs is not incompatible with the customer effect.