The Price Pressure Hypothesis Revisited: Evidence from Tax-Induced Selling

17 Pages Posted: 1 Oct 2012

See all articles by Erik Theissen

Erik Theissen

University of Mannheim - Finance Area

Meta Zaehres

affiliation not provided to SSRN

Date Written: June 7, 2012

Abstract

Do demand or supply shocks which are not accompanied by new information affect prices? If so, is the price effect temporary ("price pressure hypothesis") or permanent ("imperfect substitutes hypothesis")? Numerous empirical studies have dealt with these questions and yet the issue is still unresolved. This paper provides new evidence from Germany. Until 2009 capital gains were taxed when they were realized within a "speculative period" but not when they were realized after the end of that period. Using a sample of more than 200 IPOs that traded above the offer price at the end of the speculative period we find that a) trading volume increases significantly at the end of the speculative period and b) prices decline significantly. There is no indication of a price reversal. This is consistent with the imperfect substitutes hypothesis but inconsistent with the price pressure hypothesis.

Keywords: Price pressure hypothesis, Downward-sloping demand curves, event studies

JEL Classification: G12, G14

Suggested Citation

Theissen, Erik and Zaehres, Meta, The Price Pressure Hypothesis Revisited: Evidence from Tax-Induced Selling (June 7, 2012). 29th International Conference of the French Finance Association (AFFI) 2012. Available at SSRN: https://ssrn.com/abstract=2083608 or http://dx.doi.org/10.2139/ssrn.2083608

Erik Theissen (Contact Author)

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

Meta Zaehres

affiliation not provided to SSRN ( email )

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