Taxes, Shorting, and Active Management

35 Pages Posted: 28 Jan 2017 Last revised: 12 Dec 2017

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

Nathan Sosner

AQR Capital Management, LLC

Date Written: April 3, 2017

Abstract

We study in this paper the consequences of short selling in the context of quantitative investment strategies. Short positions not only allow investors to benefit from the anticipated underperformance of securities, they can also create tax benefits because they enhance the opportunities to time capital gain realizations. Our results show that investment strategies that take advantage of short selling can generate superior after-tax performance by significantly reducing the tax burden.

Keywords: Tax-Efficient Asset Management, Short-Selling, Quantitative Strategies

JEL Classification: G11, G18, H24

Suggested Citation

Sialm, Clemens and Sosner, Nathan, Taxes, Shorting, and Active Management (April 3, 2017). Financial Analysts Journal, Vol. 74, No. 1, 2018. Available at SSRN: https://ssrn.com/abstract=2907195 or http://dx.doi.org/10.2139/ssrn.2907195

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

Nathan Sosner

AQR Capital Management, LLC ( email )

One Greenwich Plaza
Greenwich, CT 06830
United States

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