Publications
Publications
- 2010
- HBS Working Paper Series
Investment Taxation and Portfolio Performance
By: Daniel B. Bergstresser and Jeffrey Pontiff
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
Citation
Bergstresser, Daniel B., and Jeffrey Pontiff. "Investment Taxation and Portfolio Performance." Harvard Business School Working Paper, No. 10-084, March 2010.