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Trading Volume for Winners and Losers on the Tokyo Stock Exchange

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  • Bremer, Marc
  • Kato, Kiyoshi

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.

Suggested Citation

  • Bremer, Marc & Kato, Kiyoshi, 1996. "Trading Volume for Winners and Losers on the Tokyo Stock Exchange," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(1), pages 127-142, March.
    • Handle: RePEc:cup:jfinqa:v:31:y:1996:i:01:p:127-142_00
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    Cited by:

    1. Go, You-How & Lau, Wee-Yeap, 2020. "The impact of global financial crisis on informational efficiency: Evidence from price-volume relation in crude palm oil futures market," Journal of Commodity Markets, Elsevier, vol. 17(C).
    2. Sravani Bharandev & Sapar Narayan Rao, 2021. "Does The Association Between Abnormal Trading Volumes And Historical Prices Explain Disposition Effect?," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 28(1), pages 141-151, March.
    3. Kato, Hideaki Kiyoshi & Tsay, Wenyuh, 2002. "Are stock dividends (MUSHOs) melons or lemons in Japan?," Pacific-Basin Finance Journal, Elsevier, vol. 10(5), pages 531-548, November.
    4. Kato, Hideaki Kiyoshi & Loewenstein, Uri & Tsay, Wenyuh, 2002. "Dividend policy, cash flow, and investment in Japan," Pacific-Basin Finance Journal, Elsevier, vol. 10(4), pages 443-473, September.
    5. Oehler, Andreas & Heilmann, Klaus & Lager, Volker & Oberlander, Michael, 2003. "Coexistence of disposition investors and momentum traders in stock markets: experimental evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(5), pages 503-524, December.
    6. Mirjam Lehenkari & Jukka Perttunen, 2010. "Holding on to the Losers: Finnish Evidence," Chapters, in: Brian Bruce (ed.), Handbook of Behavioral Finance, chapter 17, Edward Elgar Publishing.
    7. Goulart, Marco & da Costa, Newton C.A. & Andrade, Eduardo B. & Santos, André A.P., 2015. "Hedging against embarrassment," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 310-318.
    8. Kliger, Doron & Kudryavtsev, Andrey, 2008. "Reference point formation by market investors," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1782-1794, September.
    9. Uri Ben-Zion & Sharon Shafran & TAL SHAVIT, 2007. "Investors’ Decision To Trade Stocks – An Experimental Study," Working Papers 0708, Ben-Gurion University of the Negev, Department of Economics.
    10. Lei, Xiaoyan & Zhou, Yuegang & Zhu, Xiaoneng, 2014. "Capital gains and trading," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 167-183.
    11. Bremer, Marc & Hiraki, Takato, 1999. "Volume and individual security returns on the Tokyo Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 351-370, August.
    12. Andrey Kudryavtsev & Gil Cohen & Shlomit Hon-Snir, 2013. "“Rational” or “Intuitive”: Are Behavioral Biases Correlated Across Stock Market Investors?," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 7(2), June.
    13. Kee‐Hong Bae & Takeshi Yamada & Keiichi Ito, 2006. "How do Individual, Institutional, and Foreign Investors Win and Lose in Equity Trades? Evidence from Japan," International Review of Finance, International Review of Finance Ltd., vol. 6(3‐4), pages 129-155, September.
    14. Hayashida, Minoru & Ono, Hiroyuki, 2010. "Capital gains tax and individual trading: The case of Japan," Japan and the World Economy, Elsevier, vol. 22(4), pages 243-253, December.

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