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Capital Gains Taxation and Stock Market Activity: Evidence from IPOs

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  • William A. Reese, Jr.

    (Tulane University)

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    Abstract

    Prior to the Tax Reform Act of 1986 (TRA '86), long-term capital gains were taxed at a lower rate than short-term gains, presenting investors with an opportunity to increase their after-tax return by delaying the sale of appreciated assets until after they qualified for long-term status and selling depreciated assets prior to long-term qualification. Using a sample of Initial Public Offerings, I find that stocks that appreciated prior to long-term qualification exhibit increased volume and decreased returns just after their qualification date, while stocks that depreciated prior to long-term qualification exhibit these effects just prior to their qualification date. Copyright The American Finance Association 1998.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 53 (1998)
    Issue (Month): 5 (October)
    Pages: 1799-1819

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    Handle: RePEc:bla:jfinan:v:53:y:1998:i:5:p:1799-1819

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    Cited by:
    1. Claudio A. Agostini & Mariel C. Siravegna, 2010. "Efectos de la Exención Tributaria a las Ganancias de Capital en el Precio de las Acciones en Chile," Serie de Documentos de Trabajo 07, Superintendencia de Valores y Seguros.
    2. Kaustia, Markku, 2004. "Market-wide impact of the disposition effect: evidence from IPO trading volume," Journal of Financial Markets, Elsevier, vol. 7(2), pages 207-235, February.
    3. Jennifer L. Blouin & Jana Smith Raedy & Douglas A. Shackelford, 2000. "Capital Gains Holding Periods and Equity Trading: Evidence from the 1998 Tax Act," NBER Working Papers 7827, National Bureau of Economic Research, Inc.
    4. Maydew, Edward L., 2001. "Empirical tax research in accounting: A discussion," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 389-403, September.
    5. Jacob, Martin, 2011. "Tax Regimes and Capital Gains Realizations," Working Paper Series, Center for Fiscal Studies 2011:9, Uppsala University, Department of Economics.
    6. JOhnny Kang & Tapio Pekkala & Christopher Polk & Ruy Ribeiro, 2011. "Stock prices under pressure; How tax and interest rates drive returns at the turn of the tax year," FMG Discussion Papers dp671, Financial Markets Group.
    7. Zhonglan Dai & Edward Maydew & Douglas A. Shackelford & Harold H. Zhang, 2008. "Capital Gains Taxes and Asset Prices: Capitalization or Lock-in?," Journal of Finance, American Finance Association, vol. 63(2), pages 709-742, 04.
    8. Douglas A. Shackelford & Robert E. Verrecchia, 1999. "Intertemporal Tax Discontinuities," NBER Working Papers 7451, National Bureau of Economic Research, Inc.
    9. Harry Huizinga & Johannes Voget & Wolf Wagner, 2012. "Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases," Tinbergen Institute Discussion Papers 12-100/IV/DSF39, Tinbergen Institute.
    10. Margaret Lamb & Andrew Lymer, 1999. "Taxation research in an accounting context: future prospects and interdisciplinary perspectives," European Accounting Review, Taylor & Francis Journals, vol. 8(4), pages 749-776.
    11. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    12. Richard J. Rendleman, Jr. & Douglas A. Shackelford, 2003. "Diversification and the Taxation of Capital Gains and Losses," NBER Working Papers 9674, National Bureau of Economic Research, Inc.
    13. Hanlon, Dean & Pinder, Sean, 2007. "An empirical investigation of whether Australian capital gains tax reforms influence individual investor behaviour," Pacific-Basin Finance Journal, Elsevier, vol. 15(5), pages 481-493, November.
    14. Shackelford, Douglas A. & Shevlin, Terry, 2001. "Empirical tax research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 321-387, September.

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