Do personal taxes affect investment decisions and stock returns?

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 01 July 2022

Staff Working Paper No. 988

By Alex Kontoghiorghes

This paper studies the causal effects of personal investment taxes on stock demand, stock returns, and the financial decisions of companies. I exploit a change in legislation in 2013 which allowed stocks listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, to be held in a capital gains and dividend tax-exempt investment account for the first time. Using a difference-in-differences approach, I find that stock demand temporarily doubled, long-run stock returns decreased by 2 percentage points per month, dividend payments increased by 29%, and that the capital structure and shareholder composition permanently changed post-legislation. 

Do personal taxes affect investment decisions and stock returns?


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