Portfolio Tax Trading with Carryover Losses

Paul Ehling, Michael Gallmeyer, Sanjay Srivastava (), Stathis Tompaidis and Chunyu Yang ()
Additional contact information
Sanjay Srivastava: J. Mack Robinson College of Business, Georgia State University, Atlanta, Georgia 30303
Chunyu Yang: BI Norwegian Business School, 0484 Oslo, Norway

Management Science, 2018, vol. 64, issue 9, 4156-4176

Abstract: We study portfolio choice with multiple stocks and capital gains taxation, assuming that capital losses can only offset current or future realized capital gains. We show, through backtesting using empirical distributions, that optimal equity holdings over an extended period are significantly lower on average than benchmark holdings suggested in the literature. Using value and growth or small and large portfolios, the backtests show that allocations remain persistently underdiversified. Carryover losses have large economic significance since they can dramatically shrink the no-trade region. Finally, the backtested economic cost of incorrectly modeling capital losses is at least 8% of lifetime wealth.

Keywords: portfolio choice; capital gains taxation; limited use of capital losses; carryover losses (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2017.2733 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:64:y:2018:i:9:p:4156-4176

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().