Tax-Efficient Asset Management: Evidence from Equity Mutual Funds

92 Pages Posted: 18 Dec 2013 Last revised: 8 May 2019

See all articles by Clemens Sialm

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Hanjiang Zhang

Washington State University - Carson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 3, 2019

Abstract

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

Suggested Citation

Sialm, Clemens and Zhang, Hanjiang, Tax-Efficient Asset Management: Evidence from Equity Mutual Funds (May 3, 2019). Available at SSRN: https://ssrn.com/abstract=2368625 or http://dx.doi.org/10.2139/ssrn.2368625

Clemens Sialm (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

HOME PAGE: http://faculty.mccombs.utexas.edu/Clemens.Sialm/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Hanjiang Zhang

Washington State University - Carson College of Business ( email )

Wilson Rd.
College of Business
Pullman, WA 99164
United States

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