The effect of data availability in measuring fund managers' after-tax alphas

Zhe Chen, David R. Gallagher, Geoffrey J. Warren

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We examine potential sources of measurement error when evaluating the after-tax performance of fund managers based on periodic snapshots of their holdings alone, compared with when daily transactions data are also available. To do this, we compare portfolio return estimates based on imputed trades from monthly, quarterly and semi-annual snapshots with estimates that also incorporate daily trades for a sample of active institutional equity portfolios. This method allows us to directly measure the contribution of interim trading before tax, while more accurately estimating the tax effects associated with turnover through observing actual trade prices. Further, availability of both trade and holdings data permits the identification of how contributions and tax effects arise from income and capital gains sources, as well as how they vary across investment styles and market conditions.

Original languageEnglish
Pages (from-to)411-448
Number of pages38
JournalAccounting and Finance
Volume59
Issue numberS1
Early online date18 Jan 2017
DOIs
Publication statusPublished - Apr 2019

Keywords

  • Active fund management
  • Data sources
  • Performance evaluation
  • Taxation
  • Trading

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