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Tax-Induced Intertemporal Restrictions on Security Returns

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  • Bossaerts, Peter
  • Dammon, Robert M.

Abstract

This article derives testable restrictions on equilibrium asset prices when investors have the option to time the realization of their capital gains and losses for tax purposes. The tax-timing option alters both the magnitude and timing of equity returns relative to those in a tax-free model. The tax-induced restrictions are empirically examined, and the tax rates and preference parameters are estimated. While the tax-free model can be rejected in favor of the tax-based model as the specified alternative, the tax-based model is still unable to adequately explain cross-sectional differences in asset returns. Copyright 1994 by American Finance Association.

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File URL: http://www.hss.caltech.edu/SSPapers/sswp763.pdf
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Bibliographic Info

Paper provided by California Institute of Technology, Division of the Humanities and Social Sciences in its series Working Papers with number 763.

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Date of creation: May 1991
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Publication status: Published:
Handle: RePEc:clt:sswopa:763

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Postal: Working Paper Assistant, Division of the Humanities and Social Sciences, 228-77, Caltech, Pasadena CA 91125
Phone: 626 395-4065
Fax: 626 405-9841
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Web page: http://www.hss.caltech.edu/ss

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Postal: Working Paper Assistant, Division of the Humanities and Social Sciences, 228-77, Caltech, Pasadena CA 91125
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Cited by:
  1. 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.
  2. Clemens Sialm, 2009. "Tax Changes and Asset Pricing," American Economic Review, American Economic Association, vol. 99(4), pages 1356-83, September.
  3. 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," LSE Research Online Documents on Economics 43096, London School of Economics and Political Science, LSE Library.
  4. Paul Harrison & Harold H. Zhang, . "Cyclical Variation in the Risk and Return Relation," Computing in Economics and Finance 1997 175, Society for Computational Economics.
  5. Sialm, Clemens, 2006. "Stochastic taxation and asset pricing in dynamic general equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 30(3), pages 511-540, March.

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