Liquidity, Investor-Level Tax Rates, and Expected Rates of Return

Posted: 13 Feb 2012

See all articles by Stephanie A. Sikes

Stephanie A. Sikes

University of Pennsylvania - Accounting Department

Robert E. Verrecchia

University of Pennsylvania - Accounting Department

Date Written: February 2012

Abstract

Prior research predicts a positive relation between expected rates of return and investor-level tax rates. We provide new theory that predicts that lower liquidity amplifies and higher liquidity attenuates this positive relation. We empirically test our prediction using the cuts to individual investors’ maximum statutory tax rates on dividend income and capital gain income enacted by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA03).

Suggested Citation

Sikes, Stephanie A. and Verrecchia, Robert E., Liquidity, Investor-Level Tax Rates, and Expected Rates of Return (February 2012). 2012 American Taxation Association Midyear Meeting: Research-In-Process. Available at SSRN: https://ssrn.com/abstract=2003909

Stephanie A. Sikes (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Robert E. Verrecchia

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6976 (Phone)
215-573-2054 (Fax)

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