Tax Arbitrage with Risk and Effort Aversion - Swedish Lottery Bonds 1970-1990

Swedish lottery bonds are valuable tax shelters before the tax reform of 1991. By trading around the coupon lottery, high-tax investors with capital gains from the stock market shift their tax liability to low-tax investors. The uncertainty of the coupon lottery and the effort of verifying the winning lottery bond numbers are a nuisance to tax traders. We investigate how the Treasury (issuer), market makers (banks), and lottery bond investors respond to those frictions.Tax arbitrage; Coupon lottery; Lottery number checking; Ex-dividend day; Turn-of-the-year effect; Rationing; Underpricing

Direct Evidence of Dividend Tax Clienteles

We study a large data set of stock portfolios held by individuals and organizations in the Swedish stock market. The dividend yields on these port-folios are systematically related to investors' relative tax preferences for dividends versus capital gains. Tax-neutral investors earn 40 basis points higher dividend yield on their portfolios than investors which face higher effective taxation of dividends than capital gains. We conclude that there are dividend tax clienteles in the market. We also argue that the abundant portfolio holdings by private corporations, despite triple taxation at a combined marginal tax rate as high as 77.5%, is a consequence of taxation.Tax incidence; dividend tax clienteles; capital gains tax; stock ownership

The evolution of aggregate stock ownership : [Version December 2010]

Since World War II, direct stock ownership by households has largely been replaced by indirect stock ownership by financial institutions. We argue that tax policy is the driving force. Using long time-series from eight countries, we show that the fraction of household ownership decreases with measures of the tax benefits of holding stocks inside a pension plan. This finding is important for policy considerations on effective taxation and for financial economics research on the long-term effects of taxation on corporate finance and asset prices. JEL Classification: G10, G20, H22, H30 Keywords: Capital Gains Tax, Income Tax, Stock Ownership, Bond Ownership, Inflation, Bracket Creep, Pension Fund

The Evolution of Aggregate Stock Ownership - A Unified Explanation

Since World War II, direct stock ownership by households has largely been replaced by indirect stock ownership by financial institutions. We argue that tax policy is the driving force. Using long time-series from eight countries, we show that the fraction of household ownership decreases with measures of the tax benefits of holding stocks inside a pension plan. This finding is important for policy considerations on effctive taxation and for financial economics research on the long-term effects of taxation on corporate finance and asset prices.Capital gains tax; income tax; stock ownership; inflation; bracket creep; pension funds

Strategic Behavior and Underpricing in Uniform Price Auctions

We study uniform price auctions using a dataset which includes individual bidders' demand schedules in Finnish Treasury auctions during the period 1992-99. Average underpricing amounts to .041% of face value. Theory suggests that underpricing may result from monopsonistic market power. We develop and test robust implications from this theory and ¯nd that it has little support in the data. For example, bidders' individual demand functions do not respond to increased competition in the manner predicted by the theory. We also present evidence that the Finnish Treasury acts strategically, taking into account the fact that the auctions are part of a repeated game between the Treasury and the primary dealers. Empirically, the main driver behind bidder behavior and underpricing is the volatility of bond returns. Since there is no evidence that bidders are risk averse, this suggests that private information and the winner's curse may play an important role in these auctions.Multiunit auctions, uniform price auctions, treasury auctions, market power, demand functions, underpricing, supply uncertainty, seller behavior

Government Policy and Ownership of Financial Assets

Since World War II, direct stock ownership by households across the globe has largely been replaced by indirect stock ownership by financial institutions. We argue that tax policy is the driving force. Using long time-series from eight countries, we show that the fraction of household ownership decreases with measures of the tax benefits of holding stocks inside tax-deferred plans. This finding is important for policy considerations on effective taxation and for financial economics research on the long-term effects of taxation on corporate finance and asset prices.

Do shareholders vote strategically? Voting behavior, proposals screening, and majority rules

We study shareholder voting on management proposals. We build on a simple model of strategic voting, provide structural estimates of its parameters, and derive testable implications. The evidence suggests that voting is strategic in the sense that shareholders take into account the information of other shareholders when making their voting decisions. We conclude that strategic voting prevents incorrect rejections of management proposals

A descriptive analysis of the Finnish treasury bond market 1991–1999

This paper presents a descriptive analysis of the primary and secondary market for Finnish treasury bonds. The paper focuses on three issues. First, we report basic descriptive statistics such as auction volumes and secondary market yields and volumes. Second, we estimate the revenues earned by primary dealers from the treasury bond market. Third, we analyse the development of the price of the auctioned bonds, relative to other benchmark bonds, around the time of the auction. We find evidence of a price decrease in the auctioned bond series before the auction and a price increase after the auction. This pattern is strongest for 1992–1994 when Treasury funding needs were heavy and secondary market trading volume of treasury bonds was modest.treasury bond auctions; secondary market

A descriptive analysis of the Finnish treasury bond market 1991–1999

This paper presents a descriptive analysis of the primary and secondary market for Finnish treasury bonds. The paper focuses on three issues. First, we report basic descriptive statistics such as auction volumes and secondary market yields and volumes. Second, we estimate the revenues earned by primary dealers from the treasury bond market. Third, we analyse the development of the price of the auctioned bonds, relative to other benchmark bonds, around the time of the auction. We find evidence of a price decrease in the auctioned bond series before the auction and a price increase after the auction. This pattern is strongest for 1992–1994 when Treasury funding needs were heavy and secondary market trading volume of treasury bonds was modest.treasury bond auctions, secondary market

Norwegian School of Economics and Business Administration, Shifting Capital Markets and Performance conference at Yale University, Texas Finance Festival

Abstract Since World War II, direct stock ownership by households has largely been replaced by indirect stock ownership by financial institutions which manage pensions. We argue that tax policy is the driving force. Using long time-series from eight countries, we show that the fraction of household ownership decreases with measures of the tax benefits of holding stocks inside a pension plan. This finding is important for policy considerations on effective taxation and for financial economics research on the long-term effects of taxation on corporate finance and asset prices