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Tax‐induced Dissimilarities Between Domestic and Foreign Mutual Funds in Italy

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  • Roberto Savona

Abstract

Using data from Italy over the period 1998–2002, this study investigates whether tax effects can account for differences in return patterns between domestic and foreign mutual funds, and if this dissimilarity translates into performance. The paper presents evidence that much of the difference between domestic and foreign funds is explained by the different tax systems. The asymmetry between the two groups, due to the fact that domestic funds are obliged to pay taxes on a daily basis while foreign funds are taxed when capital gains are collected, also affects performance. We prove that comparing pre‐tax returns, Italian funds are virtually indistinguishable from their foreign counterparts in terms of risk‐adjusted returns, while when comparing after‐tax returns, foreign funds outperform.

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  • Roberto Savona, 2006. "Tax‐induced Dissimilarities Between Domestic and Foreign Mutual Funds in Italy," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 35(2), pages 173-202, July.
    • Handle: RePEc:bla:ecnote:v:35:y:2006:i:2:p:173-202
    DOI: 10.1111/j.1468-0300.2006.00164.x
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    References listed on IDEAS

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    Cited by:

    1. Grose, Chris & Dasilas, Apostolos & Alexakis, Christos, 2014. "Performance persistence in fixed interest funds: With an eye on the post-debt crisis period," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 155-182.
    2. Giuseppe Cappelletti & Giovanni Guazzarotti & Pietro Tommasino, 2019. "Tax Deferral and Mutual Fund Inflows: Evidence from a Quasi‐Natural Experiment," Fiscal Studies, John Wiley & Sons, vol. 40(2), pages 211-237, June.
    3. Benoît Dewaele & Iliya Markov & Hugues Pirotte & N. Tuchschmid, 2011. "Does manager offshore experience count in the alternative UCITS universe?," Working Papers CEB 11-060, ULB -- Universite Libre de Bruxelles.
    4. Kee-Hong Bae & Junesuh Yi, 2008. "The Impact of the Short-Short Rule Repeal on the Timing Ability of Mutual Funds," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(7-8), pages 969-997.
    5. Kee‐Hong Bae & Junesuh Yi, 2008. "The Impact of the Short‐Short Rule Repeal on the Timing Ability of Mutual Funds," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(7‐8), pages 969-997, September.

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