Cum-Ex Trading – The Biggest Fraud in History?

In this paper, we analyse the extent of cum-ex trading in European markets. Based on abnormal trading volume, the estimated total tax loss due to illicit tax refunds of withholding tax on dividends amounts to approximately €10bn. We find that cum-ex trading is positively correlated with dividend yield, which is consistent with maximising returns from this strategy. Our results are robust, controlling for confounding effects and investors’ tax heterogeneity. Relatively modest changes of how withholding taxes are administered help to prevent cum-ex trading. However, panel regressions indicate that it may still persist in some countries.