Does Tax-Loss Selling Affect UK Momentum Trading?

Posted: 5 Jan 2009

See all articles by Emilios C. Galariotis

Emilios C. Galariotis

Audencia Business School ; Audencia Nantes School of Management

Phil Holmes

Durham University

Sina H. Badreddine

Durham Business School

Date Written: January 4, 2009

Abstract

According to the tax-loss selling hypothesis investors sell bad performing stocks at tax-year-end so as to realize losses and hold on to winners so as not to realize taxable gains. An implication of this is that ceteris paribus there should be a contemporaneous increase (and possible later reversal) on the returns of a momentum strategy that is long in winners and short in losers. This paper examines whether this is the case for the London Stock Exchange. Results show that year-end tax-loss selling by individual investors can affect momentum returns, while institutional investors have a smaller impact that can also be attributed to window dressing.

Keywords: Momentum, Seasonality, Tax-Loss Selling, Window Dressing London Stock Exchange

JEL Classification: G1

Suggested Citation

Galariotis, Emilios C. and Holmes, Phil and Badreddine, Sina H., Does Tax-Loss Selling Affect UK Momentum Trading? (January 4, 2009). Available at SSRN: https://ssrn.com/abstract=1323064

Emilios C. Galariotis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

HOME PAGE: http://faculte-recherche.audencia.com/en/faculty/faculty-member-cvs/emilios-galariotis/

Audencia Nantes School of Management ( email )

France

HOME PAGE: http://faculte-recherche.audencia.com/en/faculty/faculty-member-cvs/emilios-galariotis/

Phil Holmes

Durham University ( email )

Dept. of Economics & Finance 23-26 Old Elvet
Durham DH1 3HY
United Kingdom
+44 191 374 5975 (Phone)
+44 191 374 7289 (Fax)

Sina H. Badreddine (Contact Author)

Durham Business School ( email )

Dept. of Economics & Finance 23-26 Old Elvet
Durham Business School
Durham, DH1 3HY
United Kingdom

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