An Empirical Evaluation of Tax-Loss-Harvesting Alpha
Name
SSRN-id3351382.pdf
Description
Submitted version
Size
1.39 MB
Format
Adobe PDF
Checksum (MD5)
c5cfefc5a7b1e394e1bfc745e819ec72
Author(s)
Chaudhuri, Shomesh E
Burnham, Terence C
Lo, Andrew W
Date Issued
2020
Journal
Financial Analysts Journal
Publisher
Informa UK Limited
Version
Original manuscript
Abstract
© 2020, © 2020, CFA Institute. Advances in financial technology have made tax-loss harvesting more feasible for retail investors than such strategies were in the past. We evaluated the magnitude of this “tax alpha” with the use of historical data from the CRSP monthly database for the 500 securities with the largest market capitalizations from 1926 to 2018. Given long-term and short-term capital gains tax rates of 15% and 35%, respectively, we found that a tax-loss-harvesting strategy yielded a before-transaction-cost tax alpha of 1.08% per year for our sample period. When the strategy was constrained by the “wash sale rule,” the tax alpha decreased from 1.08% per year to 0.82% per year.
MIT Department
Sloan School of Management. Laboratory for Financial Engineering
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1080/0015198X.2020.1760064
