Investment Taxation and Portfolio Performance

41 Pages Posted: 25 Jul 2009 Last revised: 1 May 2012

See all articles by Daniel Bergstresser

Daniel Bergstresser

Brandeis International Business School

Jeffrey Pontiff

Boston College - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: April 30, 2012

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 99th income percentile, the effective tax rates on SMB and HML, respectively, are 7 and 15 times greater than the tax rate on the market premium.

Keywords: taxes, portfolio performance

JEL Classification: G11, H24

Suggested Citation

Bergstresser, Daniel B. and Pontiff, Jeffrey, Investment Taxation and Portfolio Performance (April 30, 2012). Available at SSRN: https://ssrn.com/abstract=1438767 or http://dx.doi.org/10.2139/ssrn.1438767

Daniel B. Bergstresser (Contact Author)

Brandeis International Business School ( email )

Waltham, MA 02454
United States
6174162324 (Phone)

Jeffrey Pontiff

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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