Tax-Motivated Trading and Price Pressure: An Analysis of Mutual Fund Holdings

31 Pages Posted: 27 Nov 2000

See all articles by Scott Gibson

Scott Gibson

College of William and Mary - Mason School of Business

Assem Safieddine

American University of Beirut - Olayan School of Business

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Abstract

The 1986 Tax Reform Act (TRA) replaced non-synchronous tax year-ends with a common October 31 year-end for all mutual funds. After the TRA, we find that funds systematically accelerated the sale of losers prior to October 31. A similar pattern is not present for funds before the TRA, or for other types of institutions either before or after the Act. Examining stock returns in the first year the new TRA regulations became fully effective, we find evidence of a strong "November effect" for prior losers in which funds collectively had large holdings. Interestingly, fund managers appear to have learned from this experience. In subsequent years, our results suggest that funds were able to mitigate potential price pressures by having the foresight to spread tax-motivated sales over relatively long time horizons.

Suggested Citation

Gibson, George Scott and Safieddine, Assem M. and Titman, Sheridan, Tax-Motivated Trading and Price Pressure: An Analysis of Mutual Fund Holdings. Journal of Financial and Quantitative Analysis, September 2000. Available at SSRN: https://ssrn.com/abstract=245556 or http://dx.doi.org/10.2139/ssrn.245556

George Scott Gibson

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757/221-1673 (Phone)

Assem M. Safieddine

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961 1 374374 (Phone)

HOME PAGE: http://sb.aub.edu.lb/faculty/nbk.asp

Sheridan Titman (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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