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Tax-Induced Trading: The Effect of the 1986 Tax Reform Act on Stock Market Activity

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  • Bolster, Paul J
  • Lindsey, Lawrence B
  • Mitrusi, Andrew W

Abstract

The end of favorable tax treatment for long-term capital gains caused investors to reassess traditional tax-induced trading strategies. This study compares trading behavior in December 1986 and January 1987 with previous years. The authors results indicate that these tax code changes had a powerful effect on trading behavior. Relative trading volume was considerably higher in December 1986 for long-term winners, but not significantly lower for long-term losers. Results also indicate altered trading patterns based on short-term gains in December 1986 and for long-term winners in January 1987. Copyright 1989 by American Finance Association.

Suggested Citation

  • Bolster, Paul J & Lindsey, Lawrence B & Mitrusi, Andrew W, 1989. " Tax-Induced Trading: The Effect of the 1986 Tax Reform Act on Stock Market Activity," Journal of Finance, American Finance Association, vol. 44(2), pages 327-344, June.
  • Handle: RePEc:bla:jfinan:v:44:y:1989:i:2:p:327-44
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    Cited by:

    1. Burman, Leonard E. & Clausing, Kimberly A. & O'Hare, John F., 1994. "Tax Reform and Realizations of Capital Gains in 1986," National Tax Journal, National Tax Association, vol. 47(1), pages 1-18, March.

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