Discussion of The Effect of the Expected Holding Period on the Market Reaction to a Decline in the Capital Gains Tax Rate

2002 ◽  
Vol 24 (s-1) ◽  
pp. 65-69
Author(s):  
John D. Phillips
Keyword(s):  
Market Reaction ◽  
Capital Gains ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Holding Period

The Effect of the Expected Holding Period on the Market Reaction to a Decline in the Capital Gains Tax Rate

2002 ◽  
Vol 24 (s-1) ◽  
pp. 49-64 ◽  
Author(s):  
Jia-Wen Liang ◽  
Steven R. Matsunaga ◽  
Dale C. Morse
Keyword(s):  
Market Reaction ◽  
Capital Gains ◽  
Significant Variable ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Rate Reduction ◽  
Tax Rate ◽  
Holding Period ◽  
Tax Relief ◽  
The Impact

We use the market reaction to capital gains tax rate reduction in the 1997 Tax Relief Act to investigate the market reaction to a change in investor-level tax rates. We find that the positive market reaction was lower for dividend-paying securities and securities with longer expected holding periods. Our results also support the hypothesis that a longer expected holding period reduces the impact of the dividend-paying status. These results are consistent with the tax capitalization model and suggest that the expected holding period is a significant variable in explaining the market reaction to a change in capital gains tax rates.

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>

Capital Gains Taxes and Stock Return Volatility

2013 ◽  
Vol 35 (2) ◽  
pp. 1-31 ◽  
Author(s):  
Zhonglan Dai ◽  
Douglas A. Shackelford ◽  
Harold H. Zhang
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Cash Flows ◽  
Capital Gains ◽  
Return Volatility ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Stock Return Volatility ◽  
Capital Gains Taxes ◽  
The Impact

ABSTRACT This paper presents an empirical investigation of the impact of capital gains taxes on stock return volatility. We predict that the more stock returns are subject to capital gains taxation, the greater the increase in return volatility following a capital gains tax rate cut due to reduced risk-sharing in firms' cash flows between shareholders and the government. Consistent with this prediction, we find larger increases in the return volatility for more appreciated stocks than for less appreciated stocks and for non-dividend-paying stocks than for dividend-paying stocks after both 1978 and 1997 capital gains tax rate reductions. The findings imply that capital gains taxes convey a heretofore overlooked benefit of lower stock return volatility.

The Effects of the Capital Gains Tax Rate and Expectations of Subsequent Firm Performance on CEO Stock Ownership

2009 ◽  
Vol 31 (2) ◽  
pp. 1-43 ◽  
Author(s):  
Robert F. Gary
Keyword(s):  
Stock Prices ◽  
Fixed Effects ◽  
Abnormal Returns ◽  
Stock Option ◽  
Capital Gains ◽  
Stock Ownership ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Equity Ownership ◽  
The Relationship

ABSTRACT: This study examines the relationship between the Taxpayer Relief Act of 1997 (TRA97) capital gains tax rate reduction and the level of chief executive officer (CEO) equity ownership. In addition, the relationship between the level of CEO equity ownership and CEO expectations of future stock prices is investigated. Corporate scandals in recent years have increased institutional investors’ advocacy of CEO stock ownership, which investors believe will align CEO interests with those of stockholders. Prior research on the role of taxes in equity-based compensation has focused on stock option exercises, but has not studied how a tax rate change affects CEO ownership. The findings from time-series cross-sectional fixed-effects regression models of ownership levels indicate that the level of CEO ownership is inversely related to the capital gains tax rate, and that this effect varies with the abnormal returns of the firm during the following year.

Hong Kong

2018 ◽  
pp. 63-77
Author(s):  
Robyn Klingler-Vidra
Keyword(s):  
Hong Kong ◽  
Silicon Valley ◽  
Capital Gains ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Hiring Managers ◽  
Tax Exemptions ◽  
Innovation And Technology ◽  
Public Money ◽  
The Right

Chapter Four investigates Hong Kong’s adaptation of the Silicon Valley VC policy anchor. It finds that Hong Kong’s Innovation and Technology Commission institutionalized their learning of the Silicon Valley model by hiring managers experienced in Silicon Valley to design and oversee their VC policies. Knowing the importance of the right legal environment for its VC industry, attention was given to ensuring that Hong Kong’s legal fund structure was made available for VC managers to use. Initially, the Nightwatch-man State policymakers offered a low, horizontal capital gains tax rate in a manner consistent with the Silicon Valley anchor. But, feeling the “limits of laissez-faire” in competing against Singapore as a hub for VC activity, Hong Kong policymakers hired private VC managers to invest public money earmarked for VC investments. Also going beyond what they learned from the Silicon Valley model, policymakers offered tax exemptions for Hong Kong-based, offshore domiciled VC managers.

Sign in / Sign up

Export Citation Format

Share Document