HEDGED DIVIDEND CAPTURE AND EX-DAY RETURNS: AN EMPIRICAL UPDATE

We find that the magnitude of abnormal ex-day returns exhibited by US equities diminished in 1987 and 1988, subsequent to the US Tax Reform Act of 1986. We also report the results of a dividend capture strategy, hedged with the sale of stock index futures contracts. Hedging removes more than 50 percent of the risk of dividend capture, and even after transactions costs, can provide returns in excess of buying and holding the market portfolio of equities.