Investment Taxes and Equity Returns

54 Pages Posted: 18 May 2006 Last revised: 10 Sep 2010

See all articles by Clemens Sialm

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Multiple version iconThere are 2 versions of this paper

Date Written: April 2006


This paper investigates whether investors are compensated for the tax burden of equity securities. Effective tax rates on equity securities vary due to frequent tax reforms and due to persistent differences in propensities to pay dividends. The paper finds an economically and statistically significant relationship between risk-adjusted stock returns and effective personal tax rates using a new data set covering tax burdens on a cross-section of equity securities between 1927 and 2004. Consistent with tax capitalization, stocks facing higher effective tax rates tend to compensate taxable investors by generating higher before-tax returns.

Suggested Citation

Sialm, Clemens, Investment Taxes and Equity Returns (April 2006). NBER Working Paper No. w12146. Available at SSRN:

Clemens Sialm (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States


National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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