Tax-Efficient Asset Management: Evidence from Equity Mutual Funds
92 Pages Posted: 18 Dec 2013 Last revised: 8 May 2019
Date Written: May 3, 2019
We investigate the relation between tax burdens and mutual fund performance from both a theoretical and empirical perspective. The theoretical model introduces heterogeneous tax clienteles in an environment with decreasing returns to scale and shows that the equilibrium performance of mutual funds depends on the size of the tax clienteles. Our empirical results show that the performance of U.S. equity mutual funds is related to their tax burdens. We find that tax efficient funds do not only exhibit superior after-tax performance, they also exhibit superior before tax performance due to lower trading costs, favorable style exposures, and better selectivity.
Keywords: Dividend and Capital Gains Taxes, Mutual Fund Performance
JEL Classification: G18, G20, G23, H24
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