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Journal Article

Tax-Motivated Trading by Individual Investors

Zoran Ivković, James Poterba and Scott Weisbenner
The American Economic Review
Vol. 95, No. 5 (Dec., 2005), pp. 1605-1630
Stable URL: http://www.jstor.org/stable/4132767
Page Count: 26
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Tax-Motivated Trading by Individual Investors
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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.

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