Factor Tilts after Tax

20 Pages Posted: 15 Oct 2014

See all articles by Lisa R. Goldberg

Lisa R. Goldberg

University of California, Berkeley; Aperio Group

Ran Leshem

Aperio Group

Date Written: October 10, 2014

Abstract

Tax-loss harvesting can improve the after-tax returns of factor-tilted strategies. In an empirical study of global and US strategies, we found that the tax alpha generated by harvesting losses augmented the return premium, or factor alpha, in six factor-tilted strategies.

- The annual tax alpha over a 15-year period ranged from 0.77% to 2.03% for global strategies, while the annual factor alpha ranged from 0.88% to 5.11%.

- Tax alpha was lower in strategies that were more constrained.

- Tax alpha was uncorrelated with the pre-tax factor alpha generated by factor-tilted strategies, which suggests a diversification benefit.

- Our results were qualitatively consistent over the most recent 10-, 15- and 20-year horizons.

Keywords: factor tilt, taxes, tax alpha, factor alpha, tax-loss harvesting, wealth management, ultra-high net worth investors

JEL Classification: G11, H24

Suggested Citation

Goldberg, Lisa R. and Leshem, Ran, Factor Tilts after Tax (October 10, 2014). Available at SSRN: https://ssrn.com/abstract=2508490 or http://dx.doi.org/10.2139/ssrn.2508490

Lisa R. Goldberg (Contact Author)

University of California, Berkeley ( email )

Department of Statistics
367 Evans Hall
Berkeley, CA 94720-3860
United States

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

Ran Leshem

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

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