TY  - JOUR
AU  - Rendleman,Richard J., Jr.
AU  - Shackelford,Douglas A.
TI  - Diversification and the Taxation of Capital Gains and Losses
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9674
PY  - 2003
Y2  - May 2003
UR  - http://www.nber.org/papers/w9674
L1  - http://www.nber.org/papers/w9674.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  - Current U.S. law nets the total portfolio of realized capital gains and losses to compute capital gains taxes. Prior research, however, typically ignores the implication of this provision, i.e., the marginal tax rate for a specific gain or loss depends on the taxpayer's total portfolio of realized gains and losses. We find that these nettings introduce complexity into the relation between share values and capital gains taxes, creating an incentive to diversify. For firms with stock returns that are positively (negatively) correlated with those of the overall market, share values generally are decreasing (increasing) in the capital gains tax rate.
ER  -