Tax-Motivated Trading by Individual Investors

Zoran Ivkovich, James Poterba () and Scott Weisbenner

No 10275, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use data on the stock trades of a large number of individual investors to study how tax incentives affect the realization of capital gains and losses. We compare investors' realizations in their taxable and tax-deferred accounts, which allows us to identify tax-motivated trading. We reach three conclusions. First, we find a strong lock-in effect for capital gains in taxable accounts relative to tax-deferred accounts. The capital gains lock-in effect is stronger for large than for small transactions, and it intensifies at longer holding periods. Second, we find tax-loss selling throughout the calendar year, though it is most pronounced in December, particularly if the investor has realized capital gains elsewhere in the portfolio during the year. Third, we observe substantial heterogeneity in individual investors' propensity to trade. Controlling for this heterogeneity, however, does not alter the relationship between a stock's past performance and the realization decision.

JEL-codes: H24 H31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2004-02
Note: PE
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Journal Article: Tax-Motivated Trading by Individual Investors (2005)
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