tax-loss selling

Tax-Loss Selling

The act or practice of selling stock or other securities at a loss in order to offset gains from other investment or income. In the United States, one is able to reduce one's taxable income by the amount one has lost in investing. Therefore, it is common to sell securities that have declined anyway at the end of the year and thereby reduce one's tax liability.

tax-loss selling

The sale of securities that have declined in value in order to realize losses that may be used to reduce taxable income. Tax-loss selling occurs near the end of a calendar year so that the loss can be used in that tax year to offset ordinary income or gains on other security transactions. Thus, tax-loss selling occurs mainly among stock that has declined in price. Compare tax selling.
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Some of the outflows likely reflect year-end tax-loss selling, ICI says, noting that about investors withdrew some $11 billion from stock funds and $12 billion from bond funds.
We had a final run of tax-loss selling and then dealers swooped in seeing it was an artificial sell-off," said Bill O'Neill, a partner in the commodities investment firm LOGIC Advisors.
The authors also find an April effect in the Indian stock market, which can be explained by end of the year tax-loss selling.
The $600 billion of automatic tax increases and spending cuts scheduled for the beginning of next year includes higher rates for capital gains, making tax-loss selling even more appealing than usual.
Based on the mixed results of prior research related to the January effect, weak evidence of tax-loss selling, the inability of traditional measures of beta to explain realized returns, and the development of VaR as an alternative risk measure, we address the following research questions:
Another way to reduce taxes is to do some tax-loss selling to offset any potential capital gains.
However, when participants become more sensitive to tax considerations, the results of the primary experiment support the tax-loss selling hypothesis.
Further, tax-loss selling is greater for investors who have realized gains during the year and when the overall market has risen during the about-to-end calendar year.
Small cap stocks, tax-loss selling, congressional elections, "Santa Claus," market expectations and self-fulfilling prophecies may be the cause of this phenomenon.
So, no guarantee, but with the market oversold on a technical basis, tax-loss selling season coming to an end, unusual amounts of cash on the sideline as potential fuel, the end of the election uncertainty and anticipation of the Fed switching back to a friendly bias, the market is probably entering a period where its upside potential will be greater than its downside risk.
Because of the unique market conditions over the past few months, the logic seems even more compelling this year that decisions on tax-loss selling should be made through the art of valuation rather than as a continuation of a seasonal practice.
We document a unique and significant relationship between excess returns and the potential for tax-loss selling and conclude that the November effect is explained by the tax-loss-selling hypothesis.