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Investment Taxation and Portfolio Performance

Daniel Bergstresser
Harvard Business School

Jeffrey Pontiff
Boston College - Department of Finance

April 24, 2009

Abstract:
Taxes have a first-order impact on portfolio returns. Most research mistakenly assumes that portfolios command similar tax burdens, or that tax burdens are proportional to dividend yields. Portfolio strategies differ in the pace of capital gains realization. We use the federal tax codes from 1926 through 2006 to construct the after-tax returns that individual investors, corporations, and broker-dealers would have generated on a set of benchmark portfolios. For an individual at the 95th income percentile, the effective tax rates on SMB and HML, respectively, are 3 and 17 times greater than the tax rate on the market premium.

Keywords: Taxes, Portfolio Style, Investment Performance

JEL Classifications: G11, G12, H20

Working Paper Series

Date posted: March 18, 2006 ; Last revised: July 23, 2009

Suggested Citation

Bergstresser, Daniel B. and Pontiff, Jeffrey E., Investment Taxation and Portfolio Performance (April 24, 2009). Available at SSRN: http://ssrn.com/abstract=891488

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Contact Information

Jeffrey E. Pontiff (Contact Author) Boston College - Department of Finance ( email ) Carroll School of Management 140 Commonwealth Avenue Chestnut Hill, MA 02467-3808 United States
Daniel B. Bergstresser Harvard Business School ( email ) Soldiers Field Road Morgan 270C Boston, MA 02163 United States

Abstract

Citations (2)

Date posted: March 18, 2006 ; Last revised: July 23, 2009

Suggested Citation

Contact Information

Jeffrey E. Pontiff (Contact Author)

Daniel B. Bergstresser