Abstract

http://ssrn.com/abstract=794144
 
 

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A Model for Tax Advantages of Portfolios with Many Assets


John R. Birge


University of Chicago - Booth School of Business

S. Alex Yang


London Business School

August 1, 2005

Journal of Banking and Finance, Vol. 31, No. 11, 2007

Abstract:     
Taxable portfolios present challenges for optimization models with even a limited number of assets. Holding many assets, however, has a distinct tax advantage over holding few assets. In this paper, we develop a model that takes an extreme view of a portfolio as a continuum of assets to gain the broadest possible advantage from holding many assets. We find the optimal strategy for trading in this portfolio in the absence of transaction costs and develop bounding approximations on the optimal value. We compare the results in a simulation study to a portfolio consisting only of a market index and show that the multi-asset portfolio's tax advantage can lead either to significant consumption or bequest increases.

Number of Pages in PDF File: 25

Keywords: Taxes, portfolio optimization

JEL Classification: C61, G11, H24


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Date posted: September 4, 2005 ; Last revised: January 8, 2015

Suggested Citation

Birge, John R. and Yang, S. Alex, A Model for Tax Advantages of Portfolios with Many Assets (August 1, 2005). Journal of Banking and Finance, Vol. 31, No. 11, 2007. Available at SSRN: http://ssrn.com/abstract=794144 or http://dx.doi.org/10.2139/ssrn.794144

Contact Information

John R. Birge (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Chicago Booth School of Business Logo

S. Alex Yang
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
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