Abstract We examine the extent to which the distribution of corporate shareholdings affects seasonality in realized returns and the resulting implications for the conditions under which information asymmetry (IA) appears to be priced. Earlier studies have found that IA attracts a return premium only for firms with low competition for their stock, as proxied by the number of common shareholders or the number and concentration of institutional holdings. However, we demonstrate that the association between these proxies for competition and the pricing of IA is restricted to the month of January, is increasing in the potential for tax‐loss selling, concentrates in the first days of the tax year, and exists regardless of firms' fiscal year‐end dates. Overall, our evidence suggests that the association between the distribution of shareholdings and the pricing of IA reflects variation in mispricing arising from tax‐loss selling rather than compensation for the risk of trading at an information disadvantage.

ABSTRACT Mashruwala and Mashruwala (2011) argue that inconsistent earlier findings regarding whether accruals quality (AQ) is priced in equity markets (Core, Guay, and Verdi 2008; Kim and Qi 2010) may be explained by seasonality in returns deriving from tax‐loss selling. Finding no evidence of annual AQ premia for U.S. firms, Mashruwala and Mashruwala report that significant monthly premia concentrate in January, with the remainder of the year demonstrating negative or insignificant returns to AQ and attribute this strong seasonality to tax‐loss selling by investors, rather than information risk. However, the end of the tax year for U.S. investors coincides with the calendar year and the financial year for the majority of firms, which may suggest alternative explanations for seasonal variation in returns. We extend Mashruwala and Mashruwala's study, using an international sample including countries where incentives for tax‐loss selling exist, but in which the standard tax and financial years differ (Japan and the United Kingdom), and where the tax and financial years conclude in a month other than December (Australia), as well as employing a longer U.S. sample. We find some evidence of an AQ premium in the United States, which although dominated by January returns, remains significant annually. However, these findings are sensitive to the inclusion of low price stocks and the choice of asset pricing test. In Japan, the United Kingdom, and Australia we document consistent evidence that an AQ premium exists on average throughout the year, and in samples excluding the first month of the tax year. The sensitivity of our U.S. results to the January period may reflect the conflation of numerous seasonal influences on returns, not all of which necessarily reflect mispricing.