The Impact of Capital Gains Taxes on Stock Price Reactions to S&P 500 Inclusion
32 Pages Posted: 19 Jan 2001
There are 2 versions of this paper
The Impact of Capital Gains Taxes on Stock Price Reactions to S&P 500 Inclusion
The Impact of Capital Gains Taxes on Stock Price Reactions to S&P 500 Inclusion
Date Written: September 2000
Abstract
Capital gains tax rates vary with the length of time that individuals hold property. This paper investigates whether these holding period incentives to defer (accelerate) the sale of appreciated (depreciated) property affect the prices of securities entering the Standard & Poor's 500 Stock Index. Examining additions from 1978-1999, we find that on the first trading day following announcement, abnormal stock returns are increasing in the difference between short-term and long-term capital gains tax treatment. We infer that stock price adjustments shift individual investors' tax burdens to acquiring index funds. Consistent with temporary price pressure, the price reaction largely unwinds subsequently.
JEL Classification: H24, G12, G14, H22
Suggested Citation: Suggested Citation
Here is the Coronavirus
related research on SSRN
Recommended Papers
-
Institutional Investors and Equity Prices
By Paul A. Gompers and Andrew Metrick
-
New Evidence on Stock Price Effects Associated with Charges in the S&P 500 Index
-
Limited Arbitrage in Mergers and Acquisitions
By Malcolm P. Baker and Serkan Savasoglu
-
The Demand for Stocks: An Analysis of IPO Auctions
By Shmuel Kandel (deceased), Oded Sarig, ...
-
Arbitrage Risk and the Book-to-Market Anomaly
By Ashiq Ali, Lee-seok Hwang, ...
