University of Cologne, Centre for Financial Research (CFR), Cologne
The taxation of dividends in Germany underwent major changes. We analyze the implications of these changes for the valuation of DAX futures contracts and test the resulting hypotheses empirically. We find that dividend taxation cannot explain the level of deviations from the cost-of-carry relation, but does have explanatory power for the time series patterns of these deviations. Futures prices are lower in years with higher dividend yields, and prices of the June contract (which is the nearby contract in the quarter in which most firms pay their dividends) are lower than those of the other contracts. Multivariate regressions confirm the finding that dividend taxation affects futures prices.