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

Chay, Jong-Bom; Choi, Dong Gyu; Pontiff, Jeffrey

doi:10.2139/ssrn.427460

Cited by 26 publications

(18 citation statements)

References 14 publications

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“…3 3 The mutual fund shareholder thus loses the tax‐timing option pointed out by Constantinides (1983, 1984). Chay, Choi, and Pontiff (2006) make use of this aspect of the tax law to examine the importance of taxes in ex‐dividend trading by shareholders in two other types of investment companies whose shares are traded, closed‐end funds and real estate investment trusts. …”

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Mutual Fund Tax Clienteles

Sialm¹,

Starks

2012

The Journal of Finance

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Mutual funds are held by investors in taxable and tax‐qualified retirement accounts. We investigate whether the characteristics, investment strategies, and performance of mutual funds held by these diverse tax clienteles differ. Examining both mutual fund distributions and mutual fund holdings, we find that funds held primarily by taxable investors choose investment strategies that result in lower tax burdens than funds held primarily in tax‐qualified accounts. Despite these differences, we find no evidence that any investment constraints that may arise from these tax‐efficient investment strategies result in performance differences between funds held by different tax clienteles.

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confidence: 99%

Mutual Fund Tax Clienteles

Sialm¹,

Starks

2012

The Journal of Finance

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“…33 More recently, Chay, Choi, and Pontiff (2005) demonstrate that tax‐timing options can effectively reduce the tax burden by about one‐half for marginal investors. …”

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Capital Gains Tax Overhang and Price Pressure

Jin¹

2006

The Journal of Finance

127

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I study whether the capital gains tax is an impediment to selling by some investors and if so, to what degree associated delayed selling affects stock prices. I find that selling decisions by institutions serving tax-sensitive clients are sensitive to cumulative capital gains, a pattern not observed for institutions with predominantly tax-exempt clients. Moreover, tax-related underselling impacts stock prices during large earnings surprises for stocks held primarily by tax-sensitive investors. The corresponding price reactions are less negative (more positive) with higher cumulative capital gains. This price pressure pattern is more severe when arbitrage is more costly. Copyright 2006 by The American Finance Association.

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“… We note, as does the ex‐day literature, that although the nominal tax rates may be equal, the tax rate on dividends is effectively greater than that on capital gains because of the deferral and tax timing options associated with capital gains. Chay, Choi, and Pontiff () estimate a dollarf realized capital gains is equivalent to $0.93 of unrealized capital gains. …”

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confidence: 99%

Nasdaq ex‐day behavior: An out‐of‐sample test

Paudel

Silveri

2019

Rev Financ Econ

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We test various explanations of the ex‐dividend day price anomaly using Nasdaq‐listed firms. Similar to NYSE‐listed firms, on average the prices of Nasdaq‐listed firms drop by less than the dividend amount. However, the average Nasdaq price‐drop is substantially smaller than what existing theories would predict and translates to an imputed dividend tax rate that is double the maximum tax rate. We thus find little support for the tax hypothesis. We also find little support for the short‐term trading hypothesis and various other explanations. The significant disconnect we document between Nasdaq dividends and price changes seems to support the “free dividends fallacy.”

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

Cited by 26 publications

References 14 publications

Mutual Fund Tax Clienteles

Mutual Fund Tax Clienteles

Capital Gains Tax Overhang and Price Pressure

Nasdaq ex‐day behavior: An out‐of‐sample test

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