Two important factors in determining how investors select portfolios and how asset prices and returns are determined are taxes and risk. Absent risk, the effect of taxes has been captured by models that assume the existence of tax clienteles and characterize implicit taxes contained in the...

In this paper we investigate the existence and magnitudes of implicit taxes on equity. Specifically, using futures market data to control for risk, we test whether the pre-tax returns on bonds are higher than the pre-tax returns on four stock indices during the period 1993-1999. We compare the...

This study develops and tests a model of tax capitalization in stock prices. The key innovation of the model is consideration of how distribution policy affects the extent to which dividend and capital gains taxes are impounded into stock prices. The key innovation of the empirical analysis is...

This paper models equilibrium in a financial market with multiple tax clienteles and multiple assets. When investors face taxation on their returns, arbitrage by a marginal clientele equalizes after-tax returns for different assets, leading to differences in pre-tax returns known as implicit...

Recently, several studies have concluded that individual investor level dividend taxes on corporate retained earnings are impounded in common stock prices, independent of the timing of dividend payments. We show that the model underlying these studies is internally inconsistent. We also discuss...

The purpose of this paper is to evaluate the model used by Harris and Kemsley (1999), Harris, Hubbard and Kemsley (2001) and Collins and Kemsley (2000), hereafter CHHK, and to investigate their empirical results. We demonstrate that the model underlying CHHK is flawed, and show that their...

Individuals must pay tax on the secondary market transactions of tax-exempt bonds. The profits involving changes in bond prices are taxed either as income or as a capital gain. We find that municipal bonds carrying market discount, which are subject to income tax, command higher yields than...

We examine how shareholder-level taxes affect the contemporaneous pricing of foreign firms' U.S. cross-listed and underlying home-country securities surrounding the 1997 reduction in U.S. capital gains tax rates. Consistent with tax capitalization, we find that the performance of cross-listed...

We provide a detailed characterization of arbitrage-free asset prices in the presence of capital gains and income taxes. The distinguishing feature of our analysis is that we impose on the model two important features of the tax code: the limited use of capital losses and the inability to wash...

In this study, we show how to measure the size of tax benefit arising from the purchase of fixed annuities - both deferred and immediate. We demonstrate how the size of tax benefit available from tax deferral depends on five factors: (1) the length of time the annuity is held during the...