The effect of taxes on shareholder inflows around mutual fund distribution dates
Name
The Effect of Taxes on Shareholder Inflows around Mutual Fund.docx
Size
110.58 KB
Format
Unknown
Checksum (MD5)
ac7d1dae63c8326b6bfa892b41f4e76d
Author(s)
Johnson, Woodrow T.
Poterba, James Michael
Date Issued
November 2015
Journal
Research in Economics
Publisher
Elsevier
Citation
Johnson, Woodrow T., and James M. Poterba. “The Effect of Taxes on Shareholder Inflows Around Mutual Fund Distribution Dates.” Research in Economics 70, 1 (March 2016): 7–19 © 2015 University of Venice
Version
Author's final manuscript
Abstract
axable investors who are considering purchasing mutual fund shares around the dates when a mutual fund is planning a taxable distribution can reduce the present discounted value of their tax liability by delaying their purchase until after the distribution date. Non-taxable shareholders, such as those who invest through IRAs and other tax-deferred accounts, face no such incentive for delaying a purchase of the fund. This paper compares daily shareholder transactions by taxable and non-taxable investors in the mutual funds of a single no-load fund complex around distribution dates. Gross inflows to taxable accounts are significantly lower in the weeks preceding distribution dates than in the weeks following them, but gross inflows to tax-deferred accounts do not change around these dates. This finding suggests that some taxable shareholders time their purchase of mutual fund shares to avoid the tax acceleration associated with distributions. Taxable shareholders who purchase shares just before distribution dates also have shorter holding periods, on average, than those who buy just after a distribution. Since the cost of the distribution-related tax acceleration for pre-distribution buyers is related to the expected holding period of the shares, this finding provides some evidence of clientele formation among the buyers of mutual fund shares. Keywords:
Mutual funds; After-tax returns; Capital gains taxation; Taxable distributions
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1016/j.rie.2015.10.004
