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Trading Volume for Winners and Losers on the Tokyo Stock Exchange

Published online by Cambridge University Press:  06 April 2009

Marc Bremer  and
Kiyoshi Kato
Marc Bremer
Affiliation:
School of Business Administration, Nanzan University, 18 Yamazato-cho, Showa-ku, Nagoya 466, Japan
Kiyoshi Kato
Affiliation:
Eccles School of Business, University of Utah, Salt Lake City, UT 84112.
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Abstract

This paper examines trading volume on the Tokyo Stock Exchange. Traditional theory suggests that taxes create strong incentives to delay realization of capital gains and accelerate realization of losses. Contrary to the theory, we find strong evidence that turnover is higher for stocks with gains (winners) than for stocks with losses (losers). In particular, the winner stocks of keiretsu firms tend to have high end-of-fiscal-year turnover. This is true even when realizing gains could result in higher tax liabilities. We conclude that capital gains taxes have only a small impact on turnover in Japan. Other non-tax-related motives, especially window dressing, appear to dominate investor behavior. We find strong evidence that this window dressing is concentrated in the stock of keiretsu firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 31 , Issue 1 , March 1996 , pp. 127 - 142
Copyright
Copyright © School of Business Administration, University of Washington 1996

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