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Journal Article

Tax-Induced Trading and the Turn-of-the-Year Anomaly: An Intraday Study

Mark D. Griffiths and Robert W. White
The Journal of Finance
Vol. 48, No. 2 (Jun., 1993), pp. 575-598
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328913
Stable URL: http://www.jstor.org/stable/2328913
Page Count: 24

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Topics: Prices, Taxation, Taxes, Trade, Bid prices, Stock exchanges, Finance, Securities trading, Investors, Data security
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Tax-Induced Trading and the Turn-of-the-Year Anomaly: An Intraday Study
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Abstract

This study tests the tax-induced trading hypothesis as an explanation of the turn-of-the-year anomaly using Canadian and U.S. intraday data. Since the Canadian tax year-end precedes the calendar year-end by five business days, tax effects may be isolated. We find the anomaly is related to the degree of seller- and buyer-initiated trading and depends upon the incidence of the taxation year-end. Seller-initiated transactions (at bid prices) dominate until the tax year-end after which buyer-initiated trades (at ask prices) dominate. The anomaly is a function of bid-ask prices.

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