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This research aims to understand how tax incentives affect the pricing of risky assets in a controlled market environment.

Experimental Evidence on the Effects of Tax Incentives on Risky Security Prices.

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This research aims to understand how tax incentives affect the pricing of risky assets in a controlled market environment.
Conducted an experimental market to analyze asset pricing under different tax treatments.
Examined two types of tax incentives: preferential treatment of capital gains and unlimited deductions for capital losses.
Compared prices of securities with favorable tax treatment to those without.
Securities with favorable tax treatment had higher prices than equally risky, non-tax-favored securities.
No price difference was found between a high-risk, tax-favored security and a lower-risk, fully-taxable benchmark when only one tax benefit was present.
Risky securities with both capital gain and loss favorability were priced higher than the benchmark.

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Experimental evidence shows tax incentives influence risky asset prices, impacting investment strategies.

Anderson et al. (1997) studied this question.

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