This paper investigates the tripartite association among capital gains, illiquidity, and stock market returns. We find that trading in capital gains improves stock liquidity. We also find that realized stock returns are negatively related to the joint term of illiquidity and capital gains, but...

This paper verifies that prospect theory preferences and speculative motives are drivers of trading in relation to capital gains at the stock level. Initially, investors are less likely to sell a stock as capital gains or losses become larger, consistent with the prospect theory. When capital...