Do After-Tax Returns Affect Mutual Fund Inflows?

49 Pages Posted: 5 May 2000 Last revised: 13 Mar 2008

See all articles by Daniel Bergstresser

Daniel Bergstresser

Brandeis International Business School

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2000

Abstract

This paper explores the relationship between the after-tax returns that taxable investors earn on equity mutual funds and the subsequent cash inflows to these funds. Previous studies have documented that funds with high pretax returns attract greater inflows. This paper investigates the relative predictive power of pre-tax and after-tax returns for explaining annual fund inflows. The empirical results, based on a large sample of equity mutual funds over the period 1993-1998, suggest that after-tax returns have more explanatory power than pretax returns in explaining inflows. In addition, funds with large overhangs' of unrealized capital gains experience smaller inflows, all else equal, than funds without such unrealized gains. By disaggregating net fund inflows into gross inflows and gross redemptions, the paper also provides some insight on how after-tax returns and prospective capital gain realizations affect investor behavior.

Suggested Citation

Bergstresser, Daniel B. and Poterba, James M., Do After-Tax Returns Affect Mutual Fund Inflows? (March 2000). NBER Working Paper No. w7595. Available at SSRN: https://ssrn.com/abstract=222234

Daniel B. Bergstresser (Contact Author)

Brandeis International Business School ( email )

Waltham, MA 02454
United States
6174162324 (Phone)

James M. Poterba

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-350
Cambridge, MA 02142
United States
617-253-6673 (Phone)
617-253-1330 (Fax)

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