Download this Paper Open PDF in Browser

Testing the Tax-Loss Selling Explanation of the January Effect: Evidence from a 'Confiscatory' Tax Implemented in France in 1921

26 Pages Posted: 7 Jun 2017  

David Le Bris

Toulouse Business School

Sandrine Tobelem

London School of Economics & Political Science (LSE)

Date Written: June 5, 2017

Abstract

For almost a century, we document a significant January effect on the French equity market. We find strong evidences in favor of the tax-loss selling explanation for this phenomenon. Indeed, the January effect was insignificant before the introduction of a “confiscatory tax” on capital gains in 1921, and became strongly significant afterward. Moreover, the rate of taxation is statistically significant to explain the strength of the January effect over time. Studying individual stock returns, a DiffInDiff investigation shows that past losers, outperform past winners at the turn of the year but only after 1921, which reinforces further the tax-loss selling explanation of the January effect.

Keywords: Market efficiency, Calendar anomalies, historical finance

JEL Classification: G1, G12, N23, N24

Suggested Citation

Le Bris, David and Tobelem, Sandrine, Testing the Tax-Loss Selling Explanation of the January Effect: Evidence from a 'Confiscatory' Tax Implemented in France in 1921 (June 5, 2017). Available at SSRN: https://ssrn.com/abstract=2980637

David Le Bris (Contact Author)

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

Sandrine Tobelem

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Paper statistics

Downloads
11
Abstract Views
145