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Capital Gains Taxation and Stock Market Activity: Evidence from IPOs

  • William A. Reese, Jr.

    (Tulane University)

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    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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    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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