Investor Valuation, Taxation, and Time Varying Expected Returns

Petter Bjerksund and Guttorm Schjelderup

No 12737, CESifo Working Paper Series from CESifo

Abstract: This paper analyzes the valuation of publicly traded stocks subject to capital income and wealth taxation when expected returns are time-varying. We show that, in an efficient capital market, investor valuation coincides with the market price under a broad class of tax systems, including accrued and realized capital gains taxation. The result holds for arbitrary holding periods provided that tax shields are set equal to the investor's after-tax risk-free rate. The key mechanism is that taxation introduces a deterministic payoff component that can be replicated using traded assets, leaving the pricing of the stochastic return component unaffected.

Keywords: wealth tax; capital income tax; assets valuation; time varying expected returns (search for similar items in EconPapers)
JEL-codes: G11 G15 H24 H30 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-pbe and nep-pub
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