tax-loss selling

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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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The implications of our finding is that VaR is a possible proxy for tax loss selling that is priced because of potential tax benefits.
Ask potential managers if they are willing to work with you to do tax loss selling in individual client accounts.
Tax loss selling also has been significant this year, the first year since the 1990 bear market that investors have had significant losses they could use for income tax purposes by simply selling their losers.
It is believed that tax loss selling by mutual funds was, therefore, vigorous and often at fire-sale prices as funds managers raced to minimize realized gains before closing the books in October.
Wachtel (1942), Branch (1977), Roll (1981), and Keim (1983) suggest the tax loss selling hypothesis which asserts that each December individual investors sell common stocks declining in value during the year to offset other realized taxable gains.
Empirical tests of the tax loss selling hypothesis have not led to consensus.
Numerous researchers have shown that stocks near their lows at year-end typically do unusually well in January of the following year.(1) A popular theory explains this by tax loss selling. Investors sell stocks with tax losses at year-end in order to deduct their losses and then the stocks rebound in January.