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  3. American Economic Review
  4. December 2005
  5. Tax-Motivated Trading by Individual Investors

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Tax-Motivated Trading by Individual Investors

  • Zoran Ivković
  • James Poterba
  • Scott Weisbenner
American Economic Review
vol. 95, no. 5, December 2005
(pp. 1605–1630)
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Abstract

We analyze stock trades made by individuals holding stock in both taxable and tax-deferred accounts. By comparing trades across these two types of accounts, we uncover a capital gains lock-in effect in taxable accounts. The lock-in effect is more pronounced for large stock transactions and for stocks held for at least 12 months. Over shorter horizons, the disposition effect outweighs the lock-in effect. Comparison of loss realizations in taxable and tax-deferred accounts yields evidence of tax-loss selling throughout the year. Effective accrual tax rates for stocks that experience substantial appreciation are substantially below the statutory tax rate on long-term gains.

Citation

Ivković, Zoran, James Poterba, and Scott Weisbenner. 2005. "Tax-Motivated Trading by Individual Investors." American Economic Review, 95 (5): 1605–1630. DOI: 10.1257/000282805775014461

Additional Materials

JEL Classification

  • G11 Portfolio Choice; Investment Decisions
  • H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes