Dividends with no taxes: evidence from Hong Kong

Abstract

Litzenberger and Ramaswamy's (1979) model is used to test whether expected dividend yield is priced for Hong Kong stocks. Unlike the case in the United States, there are no taxes on dividend income nor on capital gains in Hong Kong. It is found that expected dividend yield has no effect on stock returns. The results are consistent with the prediction of Litzenberger and Ramaswamy's (1979) model in a market where dividend income and capital gains are not taxed.