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American Economic Review Vol. 95 No. 5 2005

Tax-Motivated Trading by Individual Investors

Zoran Ivković1; James Poterba2; Scott Weisbenner3

1 Department of Finance, University of Illinois at Urbana-Champaign, 340 Wohlers Hall, 1206 South Sixth Street, Champaign, IL 61820. · 2 Massachusetts Institute of Technology, Department of Economics, E52-350, 50 Memorial Drive, Cambridge, MA 02142-1347, and National Bureau of Economic Research. · 3 Department of Finance, University of Illinois at Urbana-Champaign, 340 Wohlers Hall, 1206 South Sixth Street, Champaign, IL 61820, and National Bureau of Economic Research.

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.

DOI
10.1257/000282805775014461
Volume
95
Issue
5
Pages
1605-1630
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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