HOW DO TAXES AFFECT INVESTORS STOCK-MARKET REALIZATIONS - EVIDENCE FROM TAX-RETURN PANEL-DATA

This article provides direct evidence on the empirical importance of tax-reduction strategies. Our results indicate that relatively few investors trade securities to reduce their taxes and that tax-induced trading has little effect on stock prices. Our findings suggest that, holding all else constant, stock prices are likely to be insensitive to the difference between short- and long-term capital gains tax rates.