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Tax-Motivated Trading by Individual Investors

  • Zoran Ivković
  • James Poterba
  • Scott Weisbenner

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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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282805775014461
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File URL: http://www.aeaweb.org/aer/data/dec05_data_20040061.zip
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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
Note: DOI: 10.1257/000282805775014461
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