Diversification and Capital Gains Taxes with Multiple Risky Assets

Autor:	Harold H. Zhang, Chester S. Spatt, Robert M. Dammon
Rok vydání:	2001
Předmět:	Capital adequacy ratio Return on assets Capital structure Financial economics Risk premium Working capital Equity (finance) Economics Capital employed Diversification (finance) Monetary economics
Zdroj:	SSRN Electronic Journal.
ISSN:	1556-5068
DOI:	10.2139/ssrn.281663
Popis:	We examine the impact of capital gains taxes upon the structure of an investor's optimal portfolio in the presence of multiple risky assets. Our numerical solutions suggest that the diversification benefits of reducing the exposure to a highly volatile concentrated position significantly outweigh the tax costs of selling, even for elderly investors. The presence of multiple risky assets in which the investor earns a substantial risk premium strongly increases the diversification incentive. We also contrast the impact of capital gains taxes and traditional transaction costs on rebalancing decisions and show that it can be optimal for the investor to reduce his overall equity exposure by selling underweighted assets with relatively small capital gains. Finally, we discuss the general qualitative features of the optimal investment policy in a broader context. Both our numerical and qualitative analyses show how the realization decision on one asset depends upon the embedded gains on other assets.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::ba4a6ff1e1524c5dd258a43a8e5dfca7 https://doi.org/10.2139/ssrn.281663 Zobrazit plný text záznamu