TY  - JOUR
AU  - Shackelford,Douglas A.
AU  - Verrecchia,Robert E.
TI  - Intertemporal Tax Discontinuities
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7451
PY  - 1999
Y2  - December 1999
UR  - http://www.nber.org/papers/w7451
L1  - http://www.nber.org/papers/w7451.pdf
N1  - Author contact info:
Douglas Shackelford
University of North Carolina at Chapel Hill
Kenan-Flagler Business School
Campus Box 3490, McColl Building
Chapel Hill, NC  27599-3490
Tel: 919/962-3197
Fax: 919/962-4727
E-Mail: doug_shack@unc.edu

Robert E. Verrecchia
Wharton School - University of Pennsylvania
Steinberg-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
E-Mail: verrecch@wharton.upenn.edu
AB  - This paper defines an intertemporal tax discontinuity (ITD) as a circumstance in which different tax rates are applied to gains and losses realized at one point in time versus some other point in time, and studies the effects of ITDs on market behaviors at the time of disclosures of firm performance.  The results show that ITDs either depress or amplify trading volume at the time of disclosure, depending upon whether the disclosure is 'good news' or 'bad news,' repectively, and lead to  'overreactions' in price changes independent of the  'news.'  We propose empirical tests of one intertemporal tax discontinuity, the spread between short-term capital gains tax rates and long-term capital gains tax rates.  We predict that stock responses to disclosures, such as quarterly earnings announcements, increase in the difference between short- term and long-term capital gains tax rates.
ER  -