Tax-Induced Intertemporal Restrictions on Security Returns

Peter Bossaerts () and Robert M Dammon

Journal of Finance, 1994, vol. 49, issue 4, 1347-71

Abstract: This article derives testable restrictions on equilibrium asset prices when investors have the option to time the realization of their capital gains and losses for tax purposes. The tax-timing option alters both the magnitude and timing of equity returns relative to those in a tax-free model. The tax-induced restrictions are empirically examined, and the tax rates and preference parameters are estimated. While the tax-free model can be rejected in favor of the tax-based model as the specified alternative, the tax-based model is still unable to adequately explain cross-sectional differences in asset returns. Copyright 1994 by American Finance Association.

Date: 1994
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Working Paper: Tax-Induced Intertemporal Restrictions on Security Returns (1991)
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