Heuristic Portfolio Trading Rules with Capital Gain Taxes

Marcel Fischer, Michael Gallmeyer

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

330 Downloads (Pure)


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.
TidsskriftJournal of Financial Economics
Udgave nummer3
Sider (fra-til)611–625
Antal sider15
StatusUdgivet - mar. 2016


  • Portfolio choice
  • Capital gain taxation
  • Limited use of capital losses
  • Heuristic trading rules