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How Do Taxes Affect Investors' Stock Market Realizations? Evidence from Tax-Return Panel Data

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  • Seyhun, H Nejat
  • Skinner, Douglas J

Abstract

This article provides direct evidence on the empirical importance of tax-reduction strategies. The authors' results indicate that relatively few investors trade securities to reduce their taxes and that tax-induced trading has little effect on stock prices. Their findings suggest that, holding all else constant, stock prices are likely to be insensitive to the difference between short- and long-term capital gains tax rates. Copyright 1994 by University of Chicago Press.

Suggested Citation

  • Seyhun, H Nejat & Skinner, Douglas J, 1994. "How Do Taxes Affect Investors' Stock Market Realizations? Evidence from Tax-Return Panel Data," The Journal of Business, University of Chicago Press, vol. 67(2), pages 231-262, April.
  • Handle: RePEc:ucp:jnlbus:v:67:y:1994:i:2:p:231-62
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    Cited by:

    1. Zoran Ivković & James Poterba & Scott Weisbenner, 2005. "Tax-Motivated Trading by Individual Investors," American Economic Review, American Economic Association, vol. 95(5), pages 1605-1630, December.
    2. Mohamed Ayadi & Hatem Ben-Ameur & Skander Lazrak & Yue Wang, 2013. "Canadian Investors and the Discount on Closed-End Funds," Journal of Financial Services Research, Springer;Western Finance Association, vol. 43(1), pages 69-98, February.
    3. Leung, Charles Ka Yui & Zhang, Guang-Jia, 2000. "Inflation and capital gains taxes in a small open economy," International Review of Economics & Finance, Elsevier, vol. 9(3), pages 195-208, July.
    4. Seida, Jim A. & Wempe, William F., 2000. "Do capital gain tax rate increases affect individual investors' trading decisions?," Journal of Accounting and Economics, Elsevier, vol. 30(1), pages 33-57, August.
    5. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    6. Hanlon, Dean & Pinder, Sean, 2007. "An empirical investigation of whether Australian capital gains tax reforms influence individual investor behaviour," Pacific-Basin Finance Journal, Elsevier, vol. 15(5), pages 481-493, November.
    7. Chen, Feng & Kraft, Arthur & Weiss, Ira, 2011. "Tax Planning by Mutual Funds: Evidence From Changes in the Capital Gains Tax Rate," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(1), pages 105-134, March.
    8. Iuliana Ismailescu & Ben Branch, 2010. "Managerial Performance and Closed‐End Country Fund Premiums: A Lead or Lag Relationship?," International Review of Finance, International Review of Finance Ltd., vol. 10(4), pages 433-453, December.
    9. Alan J. Auerbach & Leonard E. Burman & Jonathan Siegel, 1998. "Capital Gains Taxation and Tax Avoidance: New Evidence from Panel Data," NBER Working Papers 6399, National Bureau of Economic Research, Inc.

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