Some aspects of the taxation of capital gains

The analysis of the effects of capital gains taxation requires a careful modelling both of the details of the tax code and the imperfections in the capital market. Under the standard assumptions concerning perfect capital markets and under the standard idealizations of the tax code, there are several strategies by which rational investors can avoid note only all taxes on their capital income, but also all taxes on their wage income; these strategies leave individuals' consumption and bequests in each state of nature and at each date unchanged from what they would have been in the absence of taxes. Although certain detailed provisions of the tax code may limit the extent to which rational investors can avail themselves of these tax avoidance activities, there are ways, in a perfect capital market, by which the effects of these restrictions can be ameliorated. Accordingly, any analysis of the effects of capital taxation must focus on imperfect capital markets.If individuals face limitations on the amounts which they can borrow and/or if there are limitations on short sales, then under some circumstances there is a locked-in effect (individuals do not sell securities which they would have sold in the absence of taxation); but under other circumstances individuals are induced to sell securities that they otherwise would have held, in order to take advantage of the asymmetric treatment of short-term losses and long-term gains. A policy of realizing gains as soon as they become eligible for long term treatment dominates the policy of postponing the realization of capital gains, provided the gains are not too large.A simple general equilibrium model is constructed within which it is shown that the taxation of capital gains may increase the volatility of asset prices, and lead individuals not to trade when they otherwise would. While the analysis casts doubt on the significance of the welfare losses resulting from these exchange inefficiencies, there are circumstances in which the tax leads to production inefficiencies, e.g. terminating projects at other than the socially optimal date.Finally, we argue that the focus of some recent policy debates on the short-run revenue impact of a decrease in the tax rate on capital gains is misplaced: even when the short-run revenue impact is positive, consumption may increase (thus exacerbating inflationary pressures) and private savings may decrease (thus leading to a lower level of investment in the private sector). Moreover, there is some presumption that the long-run revenue impact is negative.Our analysis has some important implications for empirical research. In particular, it suggests that the impact of the tax is not adequately summarized by a single number, such as the ‘effective tax rate’ representing the average ratio of tax payments to capital gains. Moreover, the impact of the tax cannot be assessed by looking only at reported capital gains and losses.     

ACCRUED CAPITAL GAINS, PERSONAL INCOME AND SAVING IN THE UNITED STATES, 1948–1964

Capital gains are an important source of personal income in the United States but they are not included in the national accounts or the official estimate of personal income and saving. Individuals report their realized gains for tax purposes but the economic theorist would include both realized and accrued gains in income. National income theorists continue to debate whether capital gains should be included in income but, because of the many conceptual and statistical problems involved in estimating capital gains, no satisfactory estimates have been developed. Consequently, the debate has stayed mainly at the theoretical level. This paper deals with the methodology of estimating accrued capital gains. A simple analytical model is developed to estimate capital gains from data on market value and net acquisitions of an asset but the model can be adapted to incorporate asset prices directly. It is shown that the methods used for estimating accrued gains in the past are special cases of the model proposed in the paper. The model is then used for estimating gains accruing to individuals in the United States on their holdings of corporate stock, real estate and livestock during 1948–1964.
During this period accrued gains have amounted to roughly five times the realized gains reported for tax purposes; corporate stock and real estate are the most important sources of capital gains and corporate stock accounts for almost two-thirds of all accrued gains. The paper goes on to examine the implications of these estimates for the existing series on personal income and saving in the United States. The inclusion of accrued gains would increase the variance in the official estimates but personal saving is affected more than personal income. The paper concludes with an evaluation of these results and some suggestions for further research.     

Climate change implications for the catastrophe bonds market: An empirical analysis

Since their introduction in the mid-1990s, the return per unit of risk or multiple on catastrophe (cat) bonds has steadily declined. This paper investigates whether this pattern is consistent with the historical evolution of natural disaster risk, using average multiple figures over the period 1997–2017. Assessing the accuracy of cat bond pricing is important, since about 50% of outstanding risk capital in the cat bonds market is currently exposed to Atlantic hurricanes -a risk that global warming, among other disruptions, is found to enhance- and pension and mutual funds in European and other OECD countries currently own about 30% of the market. In this respect, while our findings suggest that falling multiples are primarily related to the Fed's expansionary monetary stance and to portfolio shift effects, we do also find evidence of significant undervaluation of global warming risk in the cat bonds market. This finding, also in light of the unfailing appetite of institutional investors for such securities, casts doubts over the sanity of the market and over cat bonds as suitable investment products for risk averse investors. Sounder investment opportunities might be found in the green bonds market, which allows for the funding of immediate investment in climate change mitigation too.     

Turkish Currency Crisis of 2000–2001, Revisited

Turkey’s exchange rate based stabilization programme had collapsed within just 11 months of its implementation in the midst of a liquidity crunch in November 2000 caused by a reversal in the capital inflow. The onset of the stabilization programme created ample opportunities for speculative investors to make relatively safe one‐sided bets, and the initial success of the programme in bringing down interest rates implied substantial capital gains over securities obtained in 1999 and early stages of the programme. It was only natural that speculative investors would take the opportunity to realize these gains while the firm exchange rate commitment was still in place. The programme failed to deal with this contingency effectively, assuming that as long as it was implemented faithfully, long‐term investors would be forthcoming to takeover positions speculators would want to unload. That assumption proved disastrously wrong.     

Pricing rules and Arrow–Debreu ambiguous valuation

This paper considers pricing rules of single-period securities markets with finitely many states. Our main result characterizes those pricing rules C that are super-replication prices of a frictionless and arbitrage-free incomplete asset structure with a bond. This characterization relies on the equivalence between the sets of frictionless securities and securities priced by C. The former captures securities without bid-ask spreads, while the second captures the class of securities where, if some of its delivers is replaced by a higher payoff, then the resulting security is characterized by a higher value priced by C. We also analyze the special case of pricing rules associated with securities markets admitting a structure of basic assets paying one in some event and nothing otherwise. In this case, we show that the pricing rule can be characterized in terms of capacities. This Arrow–Debreu ambiguous state price can be viewed as a generalization for incomplete markets of Arrow–Debreu state price valuation. Also, some interesting cases are given by pricing rules determined by an integral w.r.t. a risk-neutral capacity. For instance, incomplete markets of Arrow securities and a bond are revealed by a Choquet integral w.r.t. a special risk-neutral capacity.     

分散保险风险的资本市场创新工具

本文提出并设计出一种全新的金融产品———保险金融券 ,这种保险金融券具有固定收益证券的性质 ,同时又与保险公司的风险挂钩。它能将保险公司的风险有效地分散到资本市场上 ,从而增加保险市场的容量 ,提高保险公司的竞争力。同时又为资本市场的投资者提供了更多的投资品种。本文运用国外最前沿的理论成果 ,结合中国的实际情况 ,对保险金融券进行了定价 ,同时对保险金融券的发行、收益等方面进行了详细的论述。     

Taxation and the stock market valuation of capital gains and dividends: Theory and emphirical results

Dividends seem to be more heavily taxed than capital gains. Why then do corporations pay dividends rather than repurchasing shares or retaining earnings? Either corporations are not acting in the interests of shareholders, or else shareholders desire dividends sufficiently for nontax reasons to offset the tax effect.In this paper, we measure the relative valuation of dividends and capital gains in the stock market, using a variant of the capital asset pricing model. We find that dividends are not valued differently systematically from capital gains. This finding is consistent with share price maximization by firms but inconsistent with the fact that most shareholderspay a heavier tax on dividends.We also show that the relative value of dividends provides an indirect measure of a marginal Tobin's q. The measured value of dividends relative to capital gains tends to be higher during prosperous periods, as is consistent with this interpretation. We hope that this time series on a marginal Tobin's q will prove to be useful in forecasting the rate of investment.     

Asset Specificity,R&D Financing,And The Signalling Properties of The Firm's Financial Structure

Equity financing is the optimal strategy for innovating firms, which can use their financial structure as a signalling device to attract outside investors. This situation is likely to arise when the firm undertakes a specific purpose R&D project aimed at developing a certain product innovation. Typically, innovations of this kind draw on the firm's cumulative. idiosyncratic knowledge base and, accordingly, the innovation process involves an high degree of asset specificity. Under such circumstances, the terms of debt financing will be adjusted adversely, and equity financing will represent the most economically efficient solution.

These arguments are developed in standard static principal-agent models dealing with New Technology Based Firms and publicly held large firms undertaking an aggressive R&D strategy. In the case of NTBFs, two kinds of optimal venture capital contracts are considered, which render the sharing rules independent (a) of the agent's action and (b) of both the agent's action and the specific assets involved in the transaction. Regarding innovating large firms, it is argued that in this case, too, equity represents the optimal financing strategy, and that top executives use their equity share to signal the firm's expected return stream and value to outside investors.     

证券交易税的经济效应分析

正确分析证券交易税的经济效应是制定合理的证券交易税税收政策的前提，本分析了证券交易税对证券市场运行、社会资本的配置以及政府财政收入等方面的经济影响，比较了不同观点的分歧所在。本认为，无论如何评价证券交易税的经济效应，都不能脱离具体的证券市场环境，在特定的国家、特定的时期、特定的经济背景下，要综合进行权衡。     

Corporate transparency, cream-skimming and FDI

We develop a simple information-based model of Foreign direct investment (FDI) flows. On the one hand, the relative abundance of “intangible” capital in specialized industries in the source countries, which presumably generates expertise in screening investment projects in the host countries, enhances FDI flows. On the other hand, host-country relative corporate-transparency diminishes the value of this expertise, thereby reducing the flow of FDI. The model also demonstrates that the gains for the host country from FDI [over foreign portfolio investment (FPI)] are reflected in a more efficient size of the stock of domestic capital and its allocation across firms. These gains are shown to depend crucially (and positively) on the degree of competition among FDI investors. We provide also some evidence on the effects of corporate transparency indicators, such as accounting standards, on bilateral FDI flows from a panel of 24 OECD countries over the period of 1981-1998.     

Welfare Effects of Price Integration in Local Public Transport

Abstract ** :  In metropolitan areas collective transport is often supplied by many firms and in many modes. The paper focusses on the merging of decisions about prices in two market regimes: monopoly and benevolent regulation through Ramsey pricing. The results confirm that centralization entails efficiency gains under monopoly whenever a unique supplier substitutes many firms serving each link of a network. Under benevolent regulation, instead, centralization entails efficiency gains only under certain conditions. Moreover, efficiency improvements under Ramsey pricing involve the introduction of cross subsidies among previous regulatory jurisdictions. Hence some users gain while others lose. Both the theoretical and empirical literature suggest that periphery residents are the main beneficiaries of centralization .     

对我国资本市场参与者的分析及其政策建议

作者通过对我国资本市场上主要参与者——发行人(上市公司)、投资者、中介机构(主要指证券公司)和监管机构进行国际对比,分析了资本市场上所存在的这些问题以及形成这些问题的原因,并在文章的最后部分提出规范和发展资本市场的政策思路。     

Rational expectations,difference of opinions and asset pricing

This article applies the concept of relative overconfidence (the measure of how heavily investors depend on others’ information) to combine the rational expectations equilibrium (REE) and difference of opinions (DO) models. And we discuss the effects of relative overconfidence on asset price efficiency and trading volume. We find that when investors hold assets to maturity, relative overconfidence has no effect on price efficiency and trading volume; however, when investors speculate, relative overconfidence reduces price informativeness and trading volume, because investors will reckon asset prices as more noisy and find it meaningless to speculate on capital gains based on their private information. Our results highlight the role of speculation in differentiating REE and DO models and influencing the effects of overconfidence.     

美国证券市场投资者保护立法的历史演进及对我国的启示

投资者保护的根本目的在于维持投资者信心，实现公司价值最大化，促进资本积累、证券市场发展和经济增长。美国证券市场经过多年发展，市场已经相对较为完善，投资者保护程度也较高，其中完备、灵活、有效的证券法律体系功不可没。通过回顾美国证券市场投资者保护立法的演进过程，并在此基础上分析美国证券市场立法的核心所在，以期对我国证券市场法律体系的完善具有一定的借鉴意义。     

Inducing liquidity in thin financial markets through combined-value trading mechanisms

Asset pricing theory hypothesizes that investors are only interested in portfolios; individual securities are evaluated only in terms of their contribution to portfolio risk and return. Yet, standard financial market design is that of parallel, unconnected markets, whereby investors cannot submit orders in one market conditional on events in others. When markets are thin, this exposes them to substantial execution risk. Fear of ending up with unbalanced portfolios after trading may even keep investors from submitting orders, further eroding liquidity and the ability of markets to equilibrate. The suggested solution is a portfolio trading mechanism referred to as combined-value trading (CVT). Investors are allowed to submit orders for packages of securities and the system matches trades and computes prices by optimally combining portfolio orders in an open book. We study the performance of the CVT mechanism experimentally and compare it to the performance of parallel, unconnected double auctions in experiments with similar parametrization and either a similar number of subjects or substantially thicker markets. We present evidence that our portfolio trading mechanism facilitates equilibration to the extent that the thicker markets do. Inspection of order submission and trade activity reveals that subjects manage to exploit the direct linkages between markets enabled by the CVT system.     

Market states and disposition effect: evidence from Taiwan mutual fund investors

We study the disposition effect across market states in the context of mutual fund investors in Taiwan. Using mutual fund data at the fund and individual levels during July 2001 to October 2008, we find that the disposition effect varies across market states. Our results suggest that investors redeem their mutual fund units more under a bear market than a bull market when they have extreme capital losses. When investors have moderate capital gains, they are less active in redeeming their mutual fund units under a bull market relative to a bear market. Under a neutral market, investors actively redeem mutual fund units in both winner and loser mutual funds except when they have extreme capital losses. Thus, disposition effect is not uniform; it varies by market condition. In addition, the disposition effect phenomenon also exists for Taiwan mutual fund investors as well. Our findings are robust to aggregate and individual investor levels.     

Evolution of momentum and popularity

In this paper, the evolutionary behavior of two types of investor in a capital market with two risky competing securities is investigated. It is shown that, if all investors are momentum-oriented, then only those who are the most sensitive to popularity will survive. Conversely, if all investors are popularity-oriented, then they will all invest in the same security.     

International asset prices and portfolio choices under Bayesian learning

We calculate equilibrium asset prices and portfolio choices from a two-country OLG international asset pricing model under the assumption that investors are on a Bayesian learning path. Investors from both countries receive identical information flows, but domestic investors start off with less precise priors concerning foreign fundamentals. Learning is shown to produce first-order effects on the properties of asset prices, in the form of increased equity returns, volatility clustering, and time-varying correlations across national stock markets. Moreover, on a learning path, estimation risk generates portfolio biases similar to those observed empirically, i.e. a strong preference towards domestic securities and excessive turnover in foreign securities. These findings are robust to changes in prior beliefs, the calibration of initial information asymmetries, and the parameterization of the model. We use real GDP data for the US and Europe to calibrate the model and show that in the event of a financial liberalization during the 1970s, high excess returns, time-varying volatility, substantial home bias, and excess turnover should have been observed.     

Catastrophic Risk and Securities Design

The anomalies, inefficiencies and difficulties in the market for catastrophic bonds are so pronounced as to lead strongly to the inference that psychological factors have a major impact on the pricing of these bonds, and on the lack of acceptance they have encountered from investors. In this article, we examine major factors influencing the market for catastrophe bonds. Most of the economic factors involved-considered either singly or in combination-are insufficient to account for the magnitude of the anomalies observed. Decades ago, irregularities in the orbit of the planet Uranus allowed astronomers to deduce the existence of another planet, subsequently named Pluto. Since the economic forces at work in the marketplace cannot satisfactorily explain the situation in the catastrophe-bond marketplace, we infer that the gravitational pull of psychological forces is at work. We discuss eight psychological dynamics that may influence the pricing, mispricing, acceptance or lack of acceptance of catastrophe bonds.

Losses from catastrophic events represent an increasing problem for the property and casualty insurance industry. These losses have significant repercussions not only for insurance firms, but also for governmental policy makers and consumers in the insurance market. In principle, one way to deal with these risks is through securitizing them. Doing so would allow spreading risks of local disasters across global capital markets. However, previous attempts at securitizing insurance risks have, by most accounts, met with minimal success. This paper examines possible barriers to securitization, focusing on behavioral responses to such novel instruments. These barriers include the difficulties of conveying the associated risks, even to investors who are sophisticated about finance. Our analyses will draw on research in behavioral decision making and psychology. They will lead to proposals for empirical research and general strategies for making securities design more consonant with investor behavior.     

Determinants of Leverage in Slovenian Blue-Chip Firms and Stock Performance Following Substantial Debt Increases

Hypotheses concerning capital structures are some of the most frequently tested in the financial literature. Authors usually discuss different incentives for the use of leverage. Their views can be broadly classified in two main groups. The proponents of the first argue that leverage increases the cash flow available to investors. With the use of debt a firm gains because it uses a cheaper component of capital and since it pays less tax thanks to advantageous debt tax shields. On the other hand, the proponents of the second group stress the importance of minimising transaction costs, and information asymmetry. They point to a pecking order of finance sources. In this article, I explain the most frequently stated drivers that provide incentives for the more extensive use of debt with a focus on an emerging market environment and test whether they are relevant to Slovenian blue-chip firms that emerged from the transition of the last decade.

The second part introduces the owners' point of view. I test whether raised debt levels in fact improve the long-term return to the stockholders of Slovenian firms. This should be expected because of the institution-led capital structure conservatism that firms practised in the past. Three methods are employed to test the relationship between increased levels of debt and long-term stock return. All of them offer a similar conclusion that the expected long-term performance of firms which significantly increased their leverage is no better than the long-term performance of firms that did not. The results are useful for other emerging capital markets in Europe where firms and investors faced similar circumstances tied to their socialist past and transition process.