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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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    References listed on IDEAS

    as
    1. Nicola Bianchi & Michela Giorcelli, 2020. "Scientific Education and Innovation: From Technical Diplomas to University Stem Degrees [The Social Origins and IQ of Inventors]," Journal of the European Economic Association, European Economic Association, vol. 18(5), pages 2608-2646.
    2. Kyle R. Myers & Lauren Lanahan, 2022. "Estimating Spillovers from Publicly Funded R&D: Evidence from the US Department of Energy," American Economic Review, American Economic Association, vol. 112(7), pages 2393-2423, July.
    3. Steven W. Hemelt & Kevin M. Stange & Fernando Furquim & Andrew Simon & John E. Sawyer, 2021. "Why Is Math Cheaper than English? Understanding Cost Differences in Higher Education," Journal of Labor Economics, University of Chicago Press, vol. 39(2), pages 397-435.
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    More about this item

    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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