Hi All,

I have this query from Price drop when share goes Ex-Dividend. “ if the investor’s marginal tax rate on dividends is less than the marginal tax rate on capital gains, the share’s price should drop by more than the amount of the dividend when the share goes ex-dividend.” I understand this line from the formulae point of view - Price Decrease=D*(1-tax on div)/ (1-tax on capital gains). However can anyone help me understand it from logical point of view. As per my understanding if tax rate on dividend is less than that is good for investor receiving dividend and hence the drop in price of share should be less and not more. Please help.