Work

Market Valuation of Tax‐Timing Options: Evidence from Capital Gains Distributions

Year: 2006

Type: article

Abstract: ABSTRACT We examine a distribution that is taxed as a capital gain rather than as a dividend. Since the distribution induces a realized capital gain while the price change is an unrealized gain, ex‐day return behavior provides evidence of the value of tax‐timing capital gains. We show that investors are compensated 7¢ in unrealized gains for each dollar of realized capital gains, that is, $1 of realized capital gains is equivalent to 93¢ of unrealized gains. An investor with a tax rate on realized gains of 15% has an effective tax rate on unrealized capital gains of 8.6%.

Source: The Journal of Finance

DOI: 10.1111/j.1540-6261.2006.00856.x

Authors: J. B. CHAY, DOSOUNG CHOI, JEFFREY PONTIFF

Institutions: Boston College, Seoul National University, National University of Singapore, Sungkyunkwan University

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2152246494

FWCI: 11.91

Cites: 44

Cited by: 64

Related to: 10