American Economic Review: Vol. 95 No. 5 (December 2005)
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Tax-Motivated Trading by Individual Investors
Ivković, Zoran, James Poterba, and Scott Weisbenner. 2005. "Tax-Motivated Trading by Individual Investors." American Economic Review, 95(5): 1605-1630.
We analyze stock trades made by individuals holding stock in both taxable and tax-deferred accounts. By comparing trades across these two types of accounts, we uncover a capital gains lock-in effect in taxable accounts. The lock-in effect is more pronounced for large stock transactions and for stocks held for at least 12 months. Over shorter horizons, the disposition effect outweighs the lock-in effect. Comparison of loss realizations in taxable and tax-deferred accounts yields evidence of tax-loss selling throughout the year. Effective accrual tax rates for stocks that experience substantial appreciation are substantially below the statutory tax rate on long-term gains.
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