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A note on capital asset pricing and heterogeneous taxes

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  • Eikseth, Hans Marius
  • Lindset, Snorre

Abstract

In this paper, we present a stylized model where we show how asset prices, i.e., required expected rates of returns, may be characterized in a world with heterogeneous asset taxes. Within a simple CAPM-like framework, we derive an after-tax beta equal to the pre-tax beta multiplied by a (non-obvious) asset specific tax adjustment. We further show in what sense the Security Market Line here can be replaced by a Security Market Fan. Well-known CAPM relations are obtained as special cases, and policy implications are analyzed.

Suggested Citation

  • Eikseth, Hans Marius & Lindset, Snorre, 2009. "A note on capital asset pricing and heterogeneous taxes," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 573-577, March.
    • Handle: RePEc:eee:jbfina:v:33:y:2009:i:3:p:573-577
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    References listed on IDEAS

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    3. Kruschwitz, Lutz & Löffler, Andreas, 2009. "Do taxes matter in the CAPM?," arqus Discussion Papers in Quantitative Tax Research 73, arqus - Arbeitskreis Quantitative Steuerlehre.
    4. Levy, Haim & Levy, Moshe, 2009. "The safety first expected utility model: Experimental evidence and economic implications," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1494-1506, August.
    5. Weinbaum, David, 2010. "Preference heterogeneity and asset prices: An exact solution," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2238-2246, September.
    6. Marko Volker Krause, 2018. "Effects of a capital gains tax on asset pricing," Business Research, Springer;German Academic Association for Business Research, vol. 11(1), pages 115-148, February.
    7. Marko Krause & Alexander Lahmann, 2022. "Differential taxation and security market lines–a clarification," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 171-203, July.

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