Although prevalent in the financial markets, transaction costs have been largely ignored in the existing literature on the impact of capital gains tax. We develop a dynamic portfolio model that incorporates both transaction costs and annually payable capital gains taxes. We theoretically...

The effective transaction cost rates (TCRs) facing large institutional investors often depend on their trading speeds. We propose a continuous time work-horse model to study optimal trading strategies with speed-dependent TCRs. Unlike the existing literature, our model allows the TCRs to be a...

We show that option prices predict future stock returns only when stock returns are ex-ante predictable using public signals from the stock market itself. Directional option trading cannot explain these results, suggesting that they are not driven by informed trading or superior ability of...