The Effect of Data Availability in Measuring Fund Managers’ After-Tax Alpha

35 Pages Posted: 24 Mar 2016 Last revised: 18 Mar 2017

See all articles by Zhe Chen

Zhe Chen

Acadian Asset Management; University of New South Wales (UNSW); Centre for International Finance and Regulation (CIFR)

David R. Gallagher

Rozetta Institute

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Date Written: September 12, 2016

Abstract

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

Chen, Zhe and Gallagher, David R. and Warren, Geoffrey J., The Effect of Data Availability in Measuring Fund Managers’ After-Tax Alpha (September 12, 2016). CIFR Paper No. 100/2016. Available at SSRN: https://ssrn.com/abstract=2753304 or http://dx.doi.org/10.2139/ssrn.2753304

Zhe Chen (Contact Author)

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States

University of New South Wales (UNSW)

Kensington
High St
Sydney, NSW 2052
Australia

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

David R. Gallagher

Rozetta Institute ( email )

Sydney

Geoffrey J. Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

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