Do Personal Taxes Affect Investment Decisions and Stock Returns?

54 Pages Posted: 5 Mar 2021 Last revised: 21 Dec 2022

See all articles by Alexander P. Kontoghiorghes

Alexander P. Kontoghiorghes

Bank of England; Queen Mary University of London

Date Written: November 16, 2020


This paper studies the causal effects of personal investment taxes on stock demand, stock returns, and the financial decisions of companies. I exploit a change in legislation in 2013 which allowed stocks listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, to be held in capital gains and dividend tax-exempt investment accounts for the first time. Using a difference-in-differences and factor model approach, I find that stock demand temporarily doubled, excess stock returns decreased by their pre-legislation change effective tax rate, dividends increased by a quarter, and that the capital structure and shareholder composition changed post-legislation.

Keywords: Personal taxes, tax capitalization, tax clienteles, equity premium, pay-out policy

JEL Classification: G11, G12, G14, G35, G50

Suggested Citation

Kontoghiorghes, Alexander P., Do Personal Taxes Affect Investment Decisions and Stock Returns? (November 16, 2020). Available at SSRN: or

Alexander P. Kontoghiorghes (Contact Author)

Bank of England ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Queen Mary University of London ( email )

Mile End Rd
London, E1 4NS
United Kingdom

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