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Stock Price Reactions to the Canadian Lifetime Capital Gains Exemption

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  • Tao Zeng

Abstract

This study examines abnormal stock return around the announcement of the Lifetime Capital Gains Exemption (LCGE) in the Canadian federal tax system. The revised code, adopted May 23, 1985 provided individual taxpayers with a cumulative tax exemption for capital gains, up to a lifetime limit of $500,000. The empirical result, using TSX daily stock return data, indicate that around the announcement, especially before the announcement, abnormal stock returns are negatively associated with the interaction of dividend yields and individual shareholdings. This finding suggests that the stock market anticipated the capital gains tax change. The level of individual shareholding, which proxies for whether the marginal shareholders are individual shareholders are taken into account because the LCGE was only applied to individual shareholders.

Suggested Citation

  • Tao Zeng, 2009. "Stock Price Reactions to the Canadian Lifetime Capital Gains Exemption," Accounting & Taxation, The Institute for Business and Finance Research, vol. 1(1), pages 75-85.
    • Handle: RePEc:ibf:acttax:v:1:y:2009:i:1:p:75-85
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    References listed on IDEAS

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    Cited by:

    1. Akinloye Akindayomi, 2013. "Capital Gains Taxation And Stock Market Investments: Empirical Evidence," Accounting & Taxation, The Institute for Business and Finance Research, vol. 5(2), pages 1-12.

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    More about this item

    Keywords

    lifetime capital gains exemption; abnormal return; individual shareholding;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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