Introduction of the Swedish Investment Saving Account and Individual Stock Investment Behavior

Sammanfattning: The Swedish government introduced a new saving platform named as the Swedish Investment Saving Account (ISK) in January 2012 in order to simplify the taxation on the capital income of security investment. Compared to the conventional accounts (CA), ISK is taxed at a flat-rate based on the balance in the account, and there is no other taxation related to security sales and dividend distribution. To inspect the impact of the establishment of ISK on individual stock investment behavior and preference, this paper conducts a scenario analysis using based on Geometric Brownian motion model. The simulation results suggest the superiority of ISK account in a short investment horizon setup and indicate a positive relationship between stock systematic and idiosyncratic risks and the after-tax expected returns of ISK in comparison with that in CA. The paper further elaborates on the impacts of stock risks and individual investor characteristics on the investment preference of ISK by running empirical analysis on the sample of dividend-paying stocks. The regression results confirm the positive relationship between stock systematic and idiosyncratic risks and the percentage of shares invested in ISK as indicated in the simulations. Additionally, it could be inferred that young and male investors are more inclined to invest in ISK compared to other investors.