The Value of the Tax Deferral Option

2020 ◽  
pp. 0148558X2098021
Author(s):  
Nan-Ting Kuo ◽  
Cheng-Few Lee
Keyword(s):  
Stock Price ◽  
Price Change ◽  
Tax Rates ◽  
Trading Volumes ◽  
Tax Savings ◽  
Stock Dividends ◽  
Stock Dividend

This study explores the value of the tax deferral option. By examining ex-day stock-price-change ratios for taxable stock dividends in Taiwan, we find that the tax deferral option is valuable to investors. For a $1 taxable stock dividend, the tax deferral option produces 33.9 ¢ in tax savings, which suggests a tax deferral parameter of 11.3%. We also find that stocks with the tax deferral option have higher trading volumes around ex-days than those without this option, and that higher investor-level tax rates lead to higher value of the tax deferral option. We contribute to the literature by cleanly determining the value of the tax deferral option; our result is not confounded by the restart option.

Public Utility Old Money Preferred Stocks

2002 ◽  
Vol 24 (1) ◽  
pp. 1-16 ◽  
Author(s):  
T. J. Atwood
Keyword(s):  
Capital Structure ◽  
Public Utility ◽  
Public Utilities ◽  
Tax Rates ◽  
Preferred Stock ◽  
Marginal Tax Rates ◽  
Flow Through ◽  
Corporate Investors ◽  
Tax Savings ◽  
Utility Managers

Public utilities can claim a partial dividends-paid deduction on “old money” preferred stock (OMPS) but the 42 percent dividends-received deduction (DRD) allowed to corporate investors is lower than the 70 percent DRD allowed on other types of preferred stock. This study provides evidence that the implicit tax borne by OMPS is lower than that of other preferred stock and that the estimated implicit tax associated with the 70 percent DRD is much higher than prior research suggests. Evidence is also presented indicating that marginal investors in OMPS are corporations with marginal tax rates between 26.3 percent and 27.2 percent. Finally, this study provides evidence that public utilities use OMPS financing in addition to, rather than as a substitute for, other types of preferred stock. This result suggests that tax considerations influence public utility managers' capital structure decisions even though tax savings flow through to ratepayers in the rate-making process.

News Sentiment Incorporation in Real-Time Trading

2018 ◽  
Vol 26 (4) ◽  
pp. 18-35
Author(s):  
Arodh Lal Karn ◽  
YE Qiang ◽  
Rakshha Kumari Karna ◽  
Xiaolin Wang
Keyword(s):  
Stock Price ◽  
Stock Exchange ◽  
Price Change ◽  
Economic Science ◽  
Change Strategies ◽  
Technical Approach ◽  
For Profit ◽  
Helsinki Stock Exchange ◽  
Event Based ◽  
News Sentiment

This article describes how machines are the new breed of traders as news sentiment arrivals drive the stock price change. Strategies are the technical approach to search for profit from event-based speculations. This paper revisits these topics in a novel way and first uncovers distinctive characteristics of high frequency trading in Helsinki stock exchange insinuating the impression on positive recovers of event trading. Here is a better prediction by the incorporation of news on returns that proposed event trading strategy has significant effects on Finnish stock. This article contributes to the con temporarily embarked, upgrading form of practical paperwork on the take of news events in high economic science.

THE ENTROPY THEORY OF STOCK OPTION PRICING

1999 ◽  
Vol 02 (03) ◽  
pp. 331-355 ◽  
Author(s):  
LES GULKO
Keyword(s):  
Option Pricing ◽  
Interest Rates ◽  
Stock Price ◽  
Price Change ◽  
Price Volatility ◽  
Stock Option ◽  
Market Uncertainty ◽  
Gamma Model ◽  
Black Scholes ◽  
Market Beliefs

An informationally efficient price keeps investors as a group in the state of maximum uncertainty about the next price change. The Entropy Pricing Theory (EPT) captures this intuition and suggests that, in informationally efficient markets, perfectly uncertain market beliefs must prevail. When the entropy functional is used to index the market uncertainty, then the entropy-maximizing market beliefs must prevail. The EPT resolves the ambiguity of asset valuation in incomplete markets, notably, the valuation of derivative securities. We use the EPT to derive a new stock option pricing model that is similar to Black–Scholes' with the lognormal distribution replaced by a gamma distribution. Unlike the Black–Scholes model, the gamma model does not restrict the dynamics of the stock price or the short-term interest rate. Option replication based on the gamma model accounts for random changes in the stock price, price volatility and interest rates.

Japanese stock price reactions to stock dividend distributions

1994 ◽  
Vol 2 (1) ◽  
pp. 43-59 ◽  
Author(s):  
Manjeet S. Dhatt ◽  
Yong H. Kim ◽  
Sandip Mukherji
Keyword(s):  
Stock Price ◽  
Price Reactions ◽  
Stock Price Reactions ◽  
Stock Dividend

WHEN THE BUBBLE IS GOING TO BURST …

1999 ◽  
Vol 02 (03) ◽  
pp. 285-292 ◽  
Author(s):  
JING CHEN
Keyword(s):  
Hong Kong ◽  
Stock Market ◽  
Stock Price ◽  
Price Change ◽  
Convertible Bond ◽  
Price Behavior ◽  
Clear Signal ◽  
Security Markets ◽  
Relationship Of ◽  
The Relationship

There has been constant debate about the predictability of the security markets. We examine the relationship between the prices of a stock and its convertible bond during the Hong Kong stock market bubble of 1997 and its subsequent crash. We find that the price behavior of the share and the convertible bond not only gave a clear signal of the market reversal, but also the minimum range of the stock price change. This example offers concrete evidence that the market becomes highly predictable at times and gives us a chance to understand the relationship of the underlying stock and its derivatives during market bubbles.

scholarly journals Abnormal Return, Market Reaction around Rating Announcement in Tunisian Stock Market

2016 ◽  
Vol 8 (7) ◽  
pp. 322
Author(s):  
Wissem Daadaa
Keyword(s):  
Stock Price ◽  
Abnormal Return ◽  
Stock Return ◽  
Market Reaction ◽  
Stock Exchange ◽  
Price Change ◽  
Study Methodology ◽  
Book To Market Ratio ◽  
The Impact ◽  
Event Study Methodology

This paper tests the market reaction and the stock price change around rating announcements in Tunisian stock exchange using the event study methodology. We examine the impact of the change rating announcement on stock return firms from 2006 to 2010. The results show that only the negative rating with downgrades note which is associated to negative abnormal return. The market does not seem to be interested upgrades rating on the Tunisian market. The negative reaction of the market can be explained by leverage change, Book to Market ratio and the level of the rating fall.

scholarly journals Stock price response to earnings announcements: Developed versus emerging economies

2018 ◽  
Vol 15 (4) ◽  
pp. 29-45 ◽  
Author(s):  
Ahmed M. Al-Baidhani
Keyword(s):  
Stock Price ◽  
Value Relevance ◽  
Price Change ◽  
Explanatory Power ◽  
Abnormal Returns ◽  
Relevance Theory ◽  
Individual Event ◽  
Price Changes ◽  
Price Response ◽  
Earnings Response Coefficient

This study aims to evaluate the usefulness and relevance of accounting earnings disclosures, as the key determinant of stock price changes. The main objective is to examine whether earnings response coefficient (ERC) behaviour could explain more fully the stock price changes, as to the reason why the stock price change is not equal to the number of announced earnings. The study is done with data sets from five countries of the Organization for Economic Co-operation and Development (OECD) group and Malaysia. The analysis is then grouped into developed markets: Japan, UK, Sweden, and Switzerland; and emerging markets: Malaysia and Mexico, for the period 2001-2014. Two measures of abnormal returns are regressed against the size of the announced earnings. The first regression uses measures from individual events. The second regression uses a new measure; that is, from portfolios made out of all observations sorted by size of earnings into ten portfolios for each country and combination of countries. The portfolio method used was aimed at controlling possible idiosyncratic-errors-in-variables problem using individual event measures. The results using individual-event measures resulted in reasonable ERC sizes with high R2 explanatory power, a little higher than those reported in prior studies on other countries. Importantly, portfolio-based ERC is very close to the magnitude of the earnings in some tests, which supports the famous value relevance theory in accounting. This finding is new to this literature.

scholarly journals PERNYATAAN STANDAR AKUNTANSI KEUANGAN No. 46 DAN KOEFISIEN RESPON LABA AKUNTANSI

2017 ◽  
Vol 12 (3) ◽  
pp. 336
Author(s):  
Akhmad Riduwan
Keyword(s):  
Stock Price ◽  
Price Change ◽  
Negative Effects ◽  
Earnings Response Coefficient ◽  
Response Coefficient ◽  
Income Statement ◽  
Before And After ◽  
Earnings Response ◽  
The Difference ◽  
Deferred Tax

The objective of this study is to examine: (1) the difference of stock price change in the period before and after PSAK No.46 was implemented; (2) the effect of interperiod tax allocation based on PSAK No.46 on the earning response coefficient  (ERC); and (3) the ERC difference between companies which reported deferred tax income and companies which reported deferred tax expenses.The result of this study provide empirical evidence that: (1) stock price change in the period after implementing of the PSAK No.46 are higher than the period before the PSAK No.46 was implemented; (2) interperiod tax allocation based on the PSAK No.46 have negative effects on the ERC; and (3) earnings response coefficient (ERC) for companies which reported deferred tax income were not differ from companies which reported deferred tax expenses. The result of this study indicate that interperiod tax allocation based on the PSAK No.46 was succesfully improve the income statement informativeness and earnings quality. However, interperiod tax allocation based on the PSAK No.46 generate perceive noise embedded in the reported earnings. Therefore, additional disclosures are needed, particularly for economic substance of deferred tax income and deferred tax expenses reported in income statement.

scholarly journals Long-Term Capital Gains Tax Strategies: Correlated Protective Put Strategy

2011 ◽  
Vol 2 (8) ◽  
Author(s):  
John R. Aulerich ◽  
James Molloy
Keyword(s):  
Stock Price ◽  
Capital Gains ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Holding Period ◽  
Put Option ◽  
Highly Correlated ◽  
One Year

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-family: Times New Roman; font-size: x-small;">A reduction in the long-term capital gains tax rate provides investors with new strategies to minimize taxes and protect investment gains.<span style="mso-spacerun: yes;">&nbsp; </span>One such opportunity exists when an investor decides to sell a profitable stock with a holding period of less than one-year, resulting in short-term ordinary taxes.<span style="mso-spacerun: yes;">&nbsp; </span>The investor would find it more beneficial to sell the stock after one-year lapses, resulting in lower long-term capital gain taxes, although the longer holding period exposes the investor to the uncertainty of stock price movement.<span style="mso-spacerun: yes;">&nbsp; </span>A strategy to extend the holding period without excess risk would be to use the protective put option strategy, sometimes referred to as &ldquo;investment insurance&rdquo;.<span style="mso-spacerun: yes;">&nbsp; </span>The strategy involves the purchase of a put option to protect against the possible decline in the stock price, to take advantage of the lower long-term capital gains tax rate, and to preserve the upside potential of the stock.<span style="mso-spacerun: yes;">&nbsp; </span>Pursuant to IRS Publication 550, the IRS does not allow the use of a protective put to extend the holding period on the same security considered for sale.<span style="mso-spacerun: yes;">&nbsp; </span>Since the IRS does not allow a direct protective put hedge, this study will explore an alternative strategy involving the purchase of a put on a highly correlated investment to extend the holding period to recognize lower capital gains tax rates.<span style="mso-spacerun: yes;">&nbsp; </span>The paper presents example situations when an investor benefits from utilizing the correlated protective put option strategy.</span></p>

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