If there are no taxes and no volatility, I would expect the the move in a stock on the Ex-dividend date to be equal to the gross value of the dividend.
However, if I am taxed, I find the problem gets somewhat complicated, because I need to consider that
- I may be less inclined to hold a dividend-paying stock, but
- I could just sell out and buy back across the Ex-dividend date, and
- ultimately, a company that just paid out \$1 in dividends should be worth \$1 less, regardless of who ended up with the cash.
Based on the first 2 considerations I'd say that the drop on the ex-dividend date gradually reduces as taxes increase, but this is complicated by the 3rd point, which suggests to me that the stock should still drop by the value of the dividend.
Mixing these together suggests that increasing taxes should lower the price of stocks, but I can't put my finger on how much.
In my simple scenario, what would the price drop across the ex dividend date be assuming rational market participants?