Tax-Motivated Trading by Individual Investors
- (pp. 1605-1630)
Abstract
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.Citation
Ivković, Zoran, James Poterba, and Scott Weisbenner. 2005. "Tax-Motivated Trading by Individual Investors." American Economic Review, 95 (5): 1605-1630. DOI: 10.1257/000282805775014461Additional Materials
JEL Classification
- G11 Portfolio Choice; Investment Decisions
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes