Tax Loss Trading and Wash Sales

Mark Grinblatt and Matti Keloharju

University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA

Abstract: An analysis of Finnish investors’ stock trades shows that they realize losses more than gains towards the end of December. Moreover, they repurchase the same stocks recently sold. The repurchase rate depends on loss magnitude, firm size, and how late in the year the sale takes place. This trading pattern generates net tax-loss buying pressure that is negative prior to the turn of the year and positive afterwards. Cross-sectional regressions indicate that stock returns around the turn of the year, particularly for small firms, are related to net tax-loss buying pressure but not to firm size per se.

Date: 2000-04-07
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Related works:
Journal Article: Tax-loss trading and wash sales (2004)
Working Paper: Tax-Loss Trading and Wash Sales (2002)
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