Capital gains taxes and the market response to public announcements in an indexation-based tax regime

Greg Clinch and Mahmoud Odat

Journal of Contemporary Accounting and Economics, 2012, vol. 8, issue 2, 53-63

Abstract: This paper addresses the impact of capital gains taxes on the market price and trading volume response to public announcements in an indexation-based tax regime. Our analysis indicates that indexation makes share prices more responsive to public announcements. Moreover, ‘over responsiveness’ induces negative correlation between short-term price changes around the public announcement and subsequent long-term price movements. This effect is greater when anticipated inflation is higher. Our analysis also indicates that trading volume is increasing in price changes around the public announcement.

Keywords: Capital gains tax; Indexation; Public information (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:8:y:2012:i:2:p:53-63

DOI: 10.1016/j.jcae.2012.06.001

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