DIVIDENDS WITH NO TAXES - EVIDENCE FROM HONG-KONG

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