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Tax-Motivated Trading by Individual Investors

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Author Info
Zoran Ivkovic
James Poterba
Scott Weisbenner

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Abstract

We analyze stock trades made by individuals holding stock in both taxable and tax-deferred accounts. By comparing trades across these two types of accounts, we uncover a capital gains lock-in effect in taxable accounts. The lock-in effect is more pronounced for large stock transactions and for stocks held for at least 12 months. Over shorter horizons, the disposition effect outweighs the lock-in effect. Comparison of loss realizations in taxable and tax-deferred accounts yields evidence of tax-loss selling throughout the year. Effective accrual tax rates for stocks that experience substantial appreciation are substantially below the statutory tax rate on long-term gains.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 5 (December)
Pages: 1605-1630
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Handle: RePEc:aea:aecrev:v:95:y:2005:i:5:p:1605-1630

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zoran Ivkovich & Scott Weisbenner, 2007. "Information Diffusion Effects in Individual Investors' Common Stock Purchases Covet Thy Neighbors' Investment Choices," NBER Working Papers 13201, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. V. V. Chari & Mikhail Golosov & Aleh Tsyvinski, 2005. "Business Start-ups, The Lock-in Effect, and Capital Gains Taxation," Levine's Bibliography 784828000000000439, UCLA Department of Economics. [Downloadable!]
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  3. Clemens Sialm, 2005. "Tax Changes and Asset Pricing: Time-Series Evidence," NBER Working Papers 11756, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Clemens Sialm, 2006. "Investment Taxes and Equity Returns," NBER Working Papers 12146, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Doran, James & Jiang, Danling & Peterson, David, 2008. "Gambling in the New Year? The January Idiosyncratic Volatility Puzzle," MPRA Paper 8165, University Library of Munich, Germany. [Downloadable!]
  6. Doran, James & Jiang, Danling & Peterson, David, 2007. "Short-Sale Constraints and the Non-January Idiosyncratic Volatility Puzzle," MPRA Paper 4995, University Library of Munich, Germany. [Downloadable!]
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