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An empirical examination of tax factors and mutual funds' stock sales decisions

Steven Huddart and V. G. Narayanan

We examine whether taxes affect stock sales by mutual funds. For certain funds, the expected amount of a given stock sold in a given quarter is 62% greater when liquidation would trigger a capital loss equal to 1% of the value of the portfolio than when a like-size gain would be triggered, a greater effect than is associated with either contemporaneous excess stock returns of 50% or unexpected EPS equal to 50% of the stock price. For growth funds, responses to tax factors are consistent from year to year, and dispositions vary with the year-to-date realized gain.

JEL Classification: H20, M4

Keywords: invesment advisers, overhang, realized

Review of Accounting Studies Volume 7, Numbers 2/3 (June/September 2002) 319-341

Download a pre-publication version of the paper from SSRN.

Download a pdf file of the slide presentation from the 2001 Review of Accounting Studies Conference

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Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 865-3271
(814) 863-8393 fax
huddart@psu.edu
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