Strategies · Library · Tax arbitrage
§13.2Event-driven
Cross-border tax arbitrage
Some countries give domestic shareholders a tax credit on dividends, and the share price drops by more than the dividend on the ex-dividend date. A foreign holder can sell before the dividend and buy back after, or lend the stock to a domestic holder and get the credit value shared back.
- Asset class
- Tax arbitrage
- Held for
- Days
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Ex-dividend price drop compared with the dividend, for stocks with credits.
- Entry and exit
- Sell or lend before the dividend date, buy back or recall after.
- Sizing
- Position in each stock sized to the dividend.
How it fails
- Transaction costs
- Rules limiting the credit
- Stock lending restrictions
Data it needs
- dividend dates
- price data
- tax credit rules
ARCANE has daily prices but not dividend calendars or tax rules.
How ARCANE uses it
Not usable for a Call; it is a tax structure rather than a forecast.
Needs dividend dates, tax rules and lending.
Filed under the event-driven card
US stocks have tended to rise in the 24 hours before scheduled Fed decisions, whatever the decision. ARCANE’s rule goes further than the paper: position before a dated event only when Alpha’s chance differs from the market’s by a stated margin, and close once the outcome is public.
A paper plan from this card holds 1 to 30 days, stops at 1.5× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §13.2, p. 104 of the SSRN version. Described in our words. Event-driven is ARCANE’s filing, not the book’s.