Abstract
We study the out-of-sample performance of portfolio trading strategies used when an investor faces capital gain taxation and proportional transaction costs. Overlaying simple tax trading heuristics on trading strategies improves out-of-sample performance. For medium to large transaction costs, no trading strategy can outperform a 1/N trading strategy augmented with a tax heuristic, not even the most tax and transaction cost-efficient buy-and-hold strategy. Overall, the best strategy is 1/N augmented with a heuristic that allows for a fixed deviation in absolute portfolio weights. Our results thus show that the best trading strategies balance diversification considerations and tax considerations.
Originalsprog | Engelsk |
---|---|
Tidsskrift | Journal of Financial Economics |
Vol/bind | 119 |
Udgave nummer | 3 |
Sider (fra-til) | 611–625 |
Antal sider | 15 |
ISSN | 0304-405X |
DOI | |
Status | Udgivet - mar. 2016 |
Emneord
- Portfolio choice
- Capital gain taxation
- Limited use of capital losses
- Heuristic trading rules