Journal of Financial Economics Vol. 49 No. 1 1998
Open-end mutual funds and capital-gains taxes
open access
Abstract
Despite the fact that taxable investors would prefer to defer the realization of capital gains indefinitely, most open-end mutual funds regularly realize and distribute a large portion of their gains. We present a model in which unrealized gains in the fund's portfolio increase expected future taxable distributions, and thus increase the present value of a new investor's tax liability. In equilibrium, managers interested in attracting new investors pass through taxable capital gains to reduce the overhang of unrealized gains. This model contains a number of empirical predictions that are consistent with data on actual fund overhangs.
- DOI
- 10.1016/s0304-405x(98)00016-6
- Volume
- 49
- Issue
- 1
- Pages
- 3-43
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref