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The Market Reaction To The 1986 Tax Overhaul: A Study Of The Capital Gain Tax Change

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  • Hwee‐yong J. Jang

Abstract

The Tax Reform Act of 1986 (TRA) eliminated the favorable tax treatment on long‐term capital gains in the US. Using a standard event study… CONTENTS AND ABSTRACTS 111 methodology, this paper examines daily stock return reactions to the tax overhaul. The results show that high dividend yield stocks earned a significant positive abnormal return and low yield stocks a significant negative return during the legislation period. This finding is consistent with the notion that the TRA made the market valuation of stocks shift in favor of high yield stocks.

Suggested Citation

  • Hwee‐yong J. Jang, 1994. "The Market Reaction To The 1986 Tax Overhaul: A Study Of The Capital Gain Tax Change," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(8), pages 1179-1193, December.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:8:p:1179-1193
    DOI: 10.1111/j.1468-5957.1994.tb00370.x
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