Are Individual Investors Tax Savvy? Evidence from Retail and Discount Brokerage Accounts

Posted: 15 Apr 2004

See all articles by Brad M. Barber

Brad M. Barber

University of California, Davis

Terrance Odean

University of California, Berkeley - Haas School of Business

Abstract

Using brokerage account data, we analyze the tax awareness of individual investors. We find strong evidence that taxes matter: investors prefer to locate bonds and mutual funds in retirement accounts and, in December, harvest stock losses in their taxable accounts. However, investors also trade actively in their taxable accounts, realize gains more frequently than losses, and locate a material portion of their bonds in taxable accounts. Though taxes leave clear footprints in the data we analyze, many investors could improve their after-tax performance by fully capitalizing on the tax avoidance strategies available to equities, while optimally locating their assets.

Keywords: Aasset location, asset allocation, portfolio choice, taxation

JEL Classification: G11, H2, H31

Suggested Citation

Barber, Brad M. and Odean, Terrance, Are Individual Investors Tax Savvy? Evidence from Retail and Discount Brokerage Accounts. Journal of Public Economics, Vol. 88, No. 1-2, pp. 419-442, January 2004. Available at SSRN: https://ssrn.com/abstract=496177

Brad M. Barber (Contact Author)

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

Terrance Odean

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

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