Stock Return Seasonalities and the "Tax-Loss Selling" Hypothesis: Analysis of the Arguments and Australian Evidence

In this study, we extend the discussion of the tax loss selling hypothesis and also examine the month-to-month small firm return premium for a sample of Australian stocks for the period 1958-1981. Although the basic idea behind the tax-loss selling hypothesis seems straightforward, a number of factors mitigate any impact that tax related selling may have on stock prices. We argue that, at best, the tax loss hypothesis leads to ambiguous predictions.