How Do Taxes Affect the Trading Behavior of Private Investors? Evidence from Individual Portfolio Data
Florian Buhlmann, Philipp Doerrenberg, Benjamin Loos, Johannes Voget
Management Science · 2026 · Volume 72 · Issue 5
Abstract
The removal of an intertemporal tax discontinuity in Germany provides us with a natural experiment to study the causal effect of taxes on individual stock-trading behavior and the disposition effect. Using individual investor transactions data combined with nonparametric regressions and bunching methods, we find that the presence of the tax discontinuity induces investors to adjust their holding periods, which reduces their effective tax rate by 11.3%. We also find that tax effects dominate the disposition effect in the days around the discontinuity and can inhibit it (by about 20%) during the six months preceding the discontinuity. We discuss the consequences of our results for the firms whose stocks are traded and policy implications. This paper was accepted by Camelia Kuhnen, finance. Funding: F. Buhlmann gratefully acknowledges financial support by MannheimTaxation ScienceCampus. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.04213 .
Keywords
private investors, trading behavior, capital-gains, taxation, disposition effect
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