Portfolio Choice with Capital Gain Taxation and the Limited Use of Losses

Ehling, Paul; Gallmeyer, Michael; Srivastava, Sanjay; Tompaidis, Stathis; Yang, Chunyu

doi:10.2139/ssrn.1003034

Cited by 26 publications

(19 citation statements)

References 27 publications

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“…In contrast to the existing literature (e.g., Constantinides 1984;Dammon and Spatt 1996;Ehling et al 2010;Marekwica 2012), we find that it may be optimal for investors to defer not only short-term losses but also large long-term gains and long-term losses. Intuitively, different from what is assumed in the existing literature, the higher short-term rates apply to both long-term and short-term losses under the current law.…”

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confidence: 99%

“…3 For example, Cadenillas and Pliska (1999), Dammon, Spatt, and Zhang (2004), Gallmeyer, Kaniel, and Tompaidis (2006), Ben Tahar, Soner, and Touzi (2010), Ehling et al (2010), Marekwica (2012), and Fischer and Gallmeyer (2012). 4 As shown in DeMiguel and Uppal (2005), an investor rarely has more than one cost basis, and as shown in the Appendix, the certainty equivalent wealth loss from following a single-basis strategy (which is a feasible, but suboptimal strategy in our model) is almost negligible (to keep a single basis, one needs to liquidate the entire position before any additional purchases can be made).…”

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confidence: 99%

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Optimal Tax Timing with Asymmetric Long-Term/Short-Term Capital Gains Tax

et al. 2015

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We develop an optimal tax-timing model that takes into account asymmetric long-term and short-term tax rates for positive capital gains and limited tax deductibility of capital losses. In contrast to the existing literature, this model can help explain why many investors not only defer short-term capital losses to long term but also defer large long-term capital gains and losses. Because the benefit of tax deductibility of capital losses increases with the short-term tax rates, effective tax rates can decrease as short-term capital gains tax rates increase. (JEL G11, H24, K34, D91) Investors in U.S. stock markets are subject to capital gains tax when gains or losses are realized. When gains are realized, a lower long-term tax rate applies if and only if the stock holding period is at least one year. In contrast, when losses are realized, a higher short-term rate applies regardless of the length of the holding period, and investors effectively get a tax rebate. The short-term rate is set to investors' marginal ordinary income tax rate, and the rebate is implemented through deducting the losses from their taxable ordinary income. Assuming that a long-term tax rate applies to long-term losses, the existing literature on optimal investment with capital gains tax argues that We thank Pietro Veronesi (the Editor) and an anonymous referee for very helpful comments. We are grateful to

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Optimal Tax Timing with Asymmetric Long-Term/Short-Term Capital Gains Tax

et al. 2015

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“…Because capital gains crucially depend on the duration of an investment, we investigate investment decisions with exit flexibility. Despite the body of empirical literature on capital gains taxes and trading behavior (Bogart and Gentry 1995;Ivković et al 2005;Ayers et al 2008;Haesner and Schanz 2013) and the body of theoretical studies accounting for loss-offset opportunities in this context (Constantinides 1983;Stiglitz 1983;Nippel and Podlech 2011;Ehling et al 2013), all of these studies focused on listed corporations. However, little attention has been paid to the impact of capital gains taxation on both investment in corporate shares in general and the holding period under different tax systems.…”

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confidence: 99%

“…Because I 0 > 0, β > 0, τ g > 0, and (1 + i τ ) z > 0 by definition 37 , we must examine whether φ, with…”

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Hold or sell? How capital gains taxation affects holding decisions

et al. 2016

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Investments with exit flexibility require decisions regarding both the investment and holding period. Because selling an investment often leads to taxable capital gains, which crucially depend on the duration of an investment, we investigate the impact of capital gains taxation on exit timing under different tax systems. We observed that capital gains taxation delays exit decisions but loses its decision relevance for very long holdings. Often the optimal exit time, which indicates the maximal present value of future cashflows, cannot be determined analytically. However, we identify the breakeven exit time that guarantees present values exceeding those of an immediate sale. While, after-taxes, an immediate sale is often optimal, long holding periods might also be attractive for investors depending on the degree of income and corporate tax integration. A classic corporate tax system often indicates holdings over more than 100 periods. By contrast, a shareholder relief system indicates the earliest breakeven exit time and thus the highest level of exit timing flexibility. Surprisingly, high retention rates are likely to accelerate sales under a classic corporate system. Additionally, the worst exit time, which should be avoided by investors, differs tremendously across tax systems. For an integrated tax system with full imputation, the worst time is reached earlier than under partial or non-integrated systems. These results could help to predict investors' behavior regarding changes in capital gains taxation and thus are of interest for both investors and tax policymakers. Furthermore, the results emphasize the need to control for the underlying tax system in cross-country empirical studies.

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Die Entscheidung über den Verkauf von Wertpapieren unter der Abgeltungssteuer und auf Basis subjektiver Erwartungen

Nippel

Podlech

2011

Z Betriebswirtsch

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Zusammenfassung: Mit der Einführung der Abgeltungssteuer auf Kapitalerträge zum 1.1.2009 sind in Deutschland realisierte Kursgewinne bei Wertpapieren unabhängig von der Haltedauer zu versteuern. Diese Gesetzesänderung hat zur Folge, dass die Besteuerung von Kursgewinnen auch für mittel-oder langfristig engagierte Investoren bei der Entscheidung über die Veräußerung von Wertpapieren zu berücksichtigen ist. Wir analysieren optimale und auch starre Strategien im Hinblick auf die Veräußerung von Wertpapieren. Neben der Besteuerung werden auch subjektive Erwartungen des Investors einbezogen. Dabei stellt sich heraus, dass für die Entscheidung über den weiteren Verbleib eines Wertpapiers in seinem Besitz die Höhe des Kursgewinns und dessen Besteuerung zwar relevant sind, die subjektiven Erwartungen jedoch eine viel gewichtigere Rolle spielen. Dies gilt umso mehr, wenn Transaktionskosten und eine Begrenzung der steuerlichen Verlustberechnung einbezogen werden. Die Abschätzung der relativen Bedeutung von Besteuerung und subjektiven Erwartungen erfolgt insbesondere unter Rückgriff auf numerische Berechnungen.Schlüsselwörter: Abgeltungssteuer · Veräußerungsgewinnbesteuerung · Lock-in-Effekt · Vermögensoptimierung · Subjektive Erwartungen JEL Classification: D14 · G11 · H24

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Portfolio Choice with Capital Gain Taxation and the Limited Use of Losses

Cited by 26 publications

References 27 publications

Optimal Tax Timing with Asymmetric Long-Term/Short-Term Capital Gains Tax

Optimal Tax Timing with Asymmetric Long-Term/Short-Term Capital Gains Tax

Hold or sell? How capital gains taxation affects holding decisions

Die Entscheidung über den Verkauf von Wertpapieren unter der Abgeltungssteuer und auf Basis subjektiver Erwartungen

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