Abstract
Prior to the Tax Reform Act of 1986 (TRA '86), long‐term capital gains were taxed at a lower rate than short‐term gains, presenting investors with an opportunity to increase their after‐tax return by delaying the sale of appreciated assets until after they qualified for long‐term status and selling depreciated assets prior to long‐term qualification. Using a sample of Initial Public Offerings, I find that stocks that appreciated prior to long‐term qualification exhibit increased volume and decreased returns just after their qualification date, while stocks that depreciated prior to long‐term qualification exhibit these effects just prior to their qualification date.
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