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Investor Valuation, Taxation, and Time Varying Expected Returns

Author

Listed:
  • Petter Bjerksund
  • Guttorm Schjelderup

Abstract

This paper analyzes the valuation of publicly traded stocks subject to capital income and wealth taxation when expected returns are time-varying. We show that, in an efficient capital market, investor valuation coincides with the market price under a broad class of tax systems, including accrued and realized capital gains taxation. The result holds for arbitrary holding periods provided that tax shields are set equal to the investor's after-tax risk-free rate. The key mechanism is that taxation introduces a deterministic payoff component that can be replicated using traded assets, leaving the pricing of the stochastic return component unaffected.

Suggested Citation

  • Petter Bjerksund & Guttorm Schjelderup, 2026. "Investor Valuation, Taxation, and Time Varying Expected Returns," CESifo Working Paper Series 12737, CESifo.
    • Handle: RePEc:ces:ceswps:_12737
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp12737.pdf
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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