Capital Gains Taxes and the Reward-to-Risk Ratio

Transcription

1 Capial Gains Taxes and he ewad-o-isk aio Zhonlan Dai Doulas A. Shackelfod Haold H. Zhan Public conoics UK 20 May 26 20

2 U.S. individual axes on capial incoe Inees incoe is axed a eceip as odinay incoe cuenly 35%. Dividends ae axed a eceip a he dividend ax ae cuenly 5% Fo U.S. individuals only: Lon-e capial ains ax of 5% levied on all asses held fo oe han one yea. Sho-e capial ains ax levied on all ohe sales a a ae of 35%. Lon-e ains and losses ae need. Sho-e ains and losses ae need. If diffeen sin ne aain. If sae sin epo wo fiues. ealized capial losses can offse all ealized capial ains and hen ohe odinay incoe up o $3000; eainde is caied fowad foeve. 2

3 Capial ains axes ae chanes evenue Ac of 978 A educed he lon-e capial ains ax ae fo 35% o 28%. Technically inceased he exclusion ae fo 50% o 60% of he odinay ae which was 70% a he ie. Taxpaye elief Ac of 997 TA educed he lon-e capial ains ax ae fo 28% o 20%. Jobs and Gowh Tax elief and econciliaion Ac of 2003 JGTA educed he lon-e capial ains ax ae fo 20% o 5%. 3 educed he dividend ax ae fo 38.6% o 5%.

4 Wha do we know abou he effec of capial ains ax ae chanes on he equiy akes? Lile heoy abou effecs of capial ains on asse picin Bennan 970 Consaninides 983 Klein 200 Shackelfod and Veecchia 2002 Sikes and Veecchia 20 few ohes piical evidence: Dai e al. JF 2008 and ohes look a pices and volue focusin on: capializaion o deand effec lock-in o supply effec vidence fo boh depends on he sein.

5 Ou eseach quesion We know ha a chane in he capial ains ax ae affecs euns and adin volue. We know ha invesos ade-off eun and isk. How does a capial ains ax ae chane affec he ewad-o-isk aio? Does he ewad-o-isk ipove o e wose?

6 To ain powe we Use a diffeence-in-diffeences appoach Copae he ipac acoss fis wih diffeen sensiiviy o a capial ains ax ae cu. Accued ains Dividend policy

7 ewad-o-isk aio inoin shaeholde axes I is supposed o be he key deeinan of ake paicipans invesen decisions. The condiional CAPM iplies [ ] [ = Va ]. Iplicaions The ewad-o-isk aio is ie-vayin The ewad-o-isk aio is idenical acoss diffeen socks and equal o he ewad-o-isk aio on he ake pofolio Thee ae no pesonal axes in he equaion.

8 Asse picin wih capial ains axes We bein wih Klein s 200 dynaic asse picin odel which inoduces pesonal axes. Basic assupions: Inveso axiizes life-ie expeced uiliy Dividend and inees ae axed upon eceip Capial ains ae axed upon ealizaion Tax basis acquisiion cos is calculaed as weihed aveae of pas puchases

9 CAPM wih pesonal axes Klein 200 Unde hese assupions Klein 200 aives a he followin odel: { } ] [ ] [ ] [ ] [ d d y y Va δ δ =

10 The elaion beween capial ains axes and he ewad-o-isk aio eaanin es he ewad-o-isk aio is: s e: ake pofolio effec 2 nd e: dividend yield 3 d e: capial ains. / ] [ ] [ ] [ ] [ = i d d S G y Va y δ

11 ffec of capial ains ax ae cu on he ewad-o-isk aio Socks wih accued capial ains s e: neaive 2 nd e: neaive if i.e. ovenen shaes isk houh capial ains ax This is he lock-in effec. ] [ 2 i i i = 0 <

12 We pedic ha when capial ains ax aes ae educed: H:Socks wih lae accued capial ains will expeience lae inceases in he ewad-o-isk aio han will socks wih salle accued capial ains.

13 ffec of capial ains ax ae cu on he ewad-o-isk aio Socks wih dividend yield. ] [ 2 2 d d d y y y y = s e: neaive because dividends ae less aacive and oe so fo hih yield fis 2 nd e: posiive because dividends can be cu and oe so fo hih yield fis capializaion effec Because he sin can be posiive o neaive we conol fo he s e effec o isolae he 2 nd e effec.

14 We pedic ha when capial ains ax aes ae educed: H2:The ewad-o-isk aio fo socks wih hihe dividend yields pe uni of syseaic isk will decease oe han fo i will fo socks wih lowe dividend yields pe uni of syseaic isk conollin fo he dividend ax penaly.

15 Wha did we analyze? Copae 8 onhs befoe and afe he capial ains ax ae cu in he evenue Ac of % o 28% he Tax elief Ac of % o 20% and he Jobs and Gowh Tax elief econciliaion Ac of % o 5%. ewad-o-isk aion is calculaed usin daily obsevaions fo each quae. We use all socks included in he CSP daabase. Fi chaaceisics ae fo COMPUSTAT. 5

16 eession equaion Key vaiables: B 7 > 0 consisen wih H Pos Gain HIND ven duy =0 befoe ax ae cu and = afe Appeciaion in he pas iniu equied holdin peiod Duy fo above-edian individual owneship B 8 < 0 consisen wih H2 TY TP Dividend ax penaly x dividend yield Dividend ax penaly d /----conols fo penaly 6

17 A 978 7

18 TA 997 8

19 JGTA

20 esuls hold fo isk-adused euns Syseaic isk fo MIDAS eessions Diffeen holdin peiods 20

21 Conclusion Capial ains ax ae chane appeas o affec he ewad-o-isk aio. Lock-in effec evidence: Moe accued ains he lae he incease in expeced eun pe isk. Capializaion effec: Hihe he dividend yield he eae he possibiliy fo shifin o capial ains eaen. Howeve o deec capializaion you us conol fo he dividend ax penaly. 2

22 The Capial Gains Defeal Te δ Fo socks wih accued capial ains δ = [ ] i e G S G /S pe shae accued capial ains he capial ains ax ae

23 Measue of ewad-o-isk aio xpeced excess sock eun ˆ = ˆ α Z whee Z a veco of isk poxy vaiables ˆ β consisin of a subse of MKT SMB HML MOM Syseaic isk of sock σ S = SS k = The ewad-o-isk aio ˆ = = σ = N S ˆ k 2 J.