The Effect of Data Availability in Measuring Fund Managers’ After-Tax Alpha
35 Pages Posted: 24 Mar 2016 Last revised: 18 Mar 2017
Date Written: September 12, 2016
We examine potential sources of measurement error when evaluating the after-tax performance of fund managers based on periodic snapshots of their holdings alone, compared to when daily transactions data are also available. To do this, we compare portfolio return estimates based on imputed trades from monthly, quarterly and semi-annual snapshots with estimates that also incorporate daily trades for a sample of active institutional equity portfolios. This method allows us to directly measure the contribution of interim trading before-tax, while more accurately estimating the tax effects associated with turnover through observing actual trade prices. Further, availability of both trade and holdings data permits the identification of how contributions and tax effects arise from income and capital gains sources, as well as how they vary across investment styles and market conditions.
Keywords: active fund management, performance evaluation, data sources, trading, taxation
JEL Classification: G23
Suggested Citation: Suggested Citation