Capital Gains Taxes and Stock Return Volatility

  title={Capital Gains Taxes and Stock Return Volatility},
  author={Zhonglan Dai and Douglas A. Shackelford and Harold H. Zhang},
  journal={Journal of The American Taxation Association},
ABSTRACT: This paper presents an empirical investigation of the impact of capital gains taxes on stock return volatility. We predict that the more stock returns are subject to capital gains taxation, the greater the increase in return volatility following a capital gains tax rate cut due to reduced risk-sharing in firms' cash flows between shareholders and the government. Consistent with this prediction, we find larger increases in the return volatility for more appreciated stocks than for less… Expand

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