Identifying the Heterogeneous Impact of Highly Anticipated Events: Evidence from the Tax Cuts and Jobs Act

44 Pages Posted: 17 Mar 2021 Last revised: 1 Jul 2022

See all articles by Paul Borochin

Paul Borochin

University of Florida - Department of Finance, Insurance and Real Estate

Murat Alp Celik

University of Toronto - Department of Economics

Xu Tian

University of Georgia - Terry College of Business - Department of Finance

Toni M. Whited

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research

Date Written: March 17, 2021

Abstract

We develop a method for estimating individual firm heterogeneity in the stock market impact of aggregate events, using data on both stock and options prices. Our method impounds the effects of event anticipation. We apply the method to the passage of the Tax Cuts and Jobs Act (TCJA), which exhibits both anticipation and heterogeneity. We estimate that the market anticipated the probability of passage to be 95% 30 days before the event. The full value impact of the TCJA is 12.36%, compared to 0.68% when market anticipation is ignored. Large, innovative firms with high growth prospects are the largest winners.

Keywords: Event Study, Market Anticipation, Options, Tax Policy, Innovation

JEL Classification: G13, G14, G18, H25, O34

Suggested Citation

Borochin, Paul and Celik, Murat Alp and Tian, Xu and Whited, Toni M., Identifying the Heterogeneous Impact of Highly Anticipated Events: Evidence from the Tax Cuts and Jobs Act (March 17, 2021). Available at SSRN: https://ssrn.com/abstract=3806560 or http://dx.doi.org/10.2139/ssrn.3806560

Paul Borochin

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Murat Alp Celik

University of Toronto - Department of Economics ( email )

150 St. George St.
Toronto, ON M5S 3G7
Canada

HOME PAGE: http://muratcelik.faculty.economics.utoronto.ca/

Xu Tian

University of Georgia - Terry College of Business - Department of Finance ( email )

620 S Lumpkin St
Athens, GA 30602
United States

HOME PAGE: http://www.xutianur.com

Toni M. Whited (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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