Investment Taxation and Portfolio Performance

50 Pages Posted: 18 Mar 2006 Last revised: 16 Mar 2010

See all articles by Daniel Bergstresser

Daniel Bergstresser

Brandeis International Business School

Jeffrey Pontiff

Boston College - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 15, 2010

Abstract

Taxes have a first-order impact on portfolio returns. Most research mistakenly assumes that portfolios command similar tax burdens, or that tax burdens are proportional to dividend yields. Portfolio strategies differ in the pace of capital gains realization. We use the federal tax codes from 1926 through 2007 to construct the after-tax returns that individual investors, corporations, and broker-dealers would have generated on a set of benchmark portfolios. For an individual at the 99th income percentile, the effective tax rates on SMB and HML, respectively, are 7 and 15 times greater than the tax rate on the market premium.

Keywords: Taxes, Portfolio Style, Investment Performance

JEL Classification: G11, G12, H20

Suggested Citation

Bergstresser, Daniel B. and Pontiff, Jeffrey, Investment Taxation and Portfolio Performance (March 15, 2010). Available at SSRN: https://ssrn.com/abstract=891488 or http://dx.doi.org/10.2139/ssrn.891488

Daniel B. Bergstresser

Brandeis International Business School ( email )

Waltham, MA 02454
United States
6174162324 (Phone)

Jeffrey Pontiff (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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