TY  - JOUR
AU  - Blouin,Jennifer L.
AU  - Raedy,Jana Smith
AU  - Shackelford,Douglas A.
TI  - Capital Gains Holding Periods and Equity Trading: Evidence from the 1998 Tax Act
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7827
PY  - 2000
Y2  - August 2000
UR  - http://www.nber.org/papers/w7827
L1  - http://www.nber.org/papers/w7827.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
AB  - This paper exploits an unusually powerful setting to explore a choice many individual investors face regularly the decision to sell today or postpone selling until lower rates are available in the future.  We examine trading volume and stock returns around the 1998 reduction in the holding period required for individual investors to receive the most favorable long-term capital gains tax rate.  For firms whose initial public shareholders were affected by the legislation, we find trading volume increasing and share returns decreasing in past price performance on the day the legislation was publicly disclosed.  The results are consistent with capital gains holding periods distorting markets sufficiently that if investors are permitted to liquidate appreciated positions at favorable rates, enough will sell immediately to move prices.  To our knowledge, this is the first study linking trading volume and security prices to a change in capital gains holding periods.
ER  -