Tax‐Induced Trading and the Turn‐of‐the‐Year Anomaly: An Intraday Study
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- Author(s): MARK D. GRIFFITHS, ROBERT W. WHITE
- Published: Apr 30, 2012
- Pages: 575-598
- DOI: 10.1111/j.1540-6261.1993.tb04728.x
This study tests the tax‐induced trading hypothesis as an explanation of the turn‐of‐the‐year anomaly using Canadian and U.S. intraday data. Since the Canadian tax year‐end precedes the calendar year‐end by five business days, tax effects may be isolated. We find the anomaly is related to the degree of seller‐and buyer‐initiated trading and depends upon the incidence of the taxation year‐end. Seller‐initiated transactions (at bid prices) dominate until the tax year‐end after which buyer‐initiated trades (at ask prices) dominate. The anomaly is a function of bid‐ask prices.