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An Empirical Examination of Tax Factors and Mutual Funds' Stock Sales Decisions

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  • Steven Huddart

  • V. G. Narayanan

Abstract

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.

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  • Steven Huddart & V. G. Narayanan, 2002. "An Empirical Examination of Tax Factors and Mutual Funds' Stock Sales Decisions," Review of Accounting Studies, Springer, vol. 7(2), pages 319-341, June.
    • Handle: RePEc:spr:reaccs:v:7:y:2002:i:2:d:10.1023_a:1020250708495
    DOI: 10.1023/A:1020250708495
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