Taxes and Mutual Fund Inflows Around Distribution Dates
Capital gain distributions by mutual funds generate tax liability for taxable shareholders, thereby reducing their after-tax returns. Taxable investors who are considering purchasing fund shares around distribution dates have an incentive to delay their purchase until after the distribution, since this will reduce the present value of their tax liability. Non-taxable shareholders, such as those who invest through IRAs and other tax-deferred accounts, face no such incentive for delaying purchase. This paper compares daily shareholder transactions by taxable and non-taxable investors in the mutual funds of a single no-load fund complex around distribution dates. Gross inflows to taxable accounts are significantly lower in the weeks preceding distribution dates than in the weeks following them, but gross inflows to tax-deferred accounts do not change around these dates. This finding suggests that some taxable shareholders time their purchase of mutual fund shares to avoid the tax acceleration associated with distributions. Taxable shareholders who purchase shares just before distribution dates also have shorter holding periods, on average, than those who buy after a distribution. The cost of the distribution-related tax acceleration for pre-distribution buyers is therefore somewhat less than that for those who buy after the distribution.
|Date of creation:||Mar 2008|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Khorana, Ajay & Servaes, Henri, 1999. "The Determinants of Mutual Fund Starts," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1043-1074.
- Dickson, Joel M. & Shoven, John B. & Sialm, Clemens, 2000.
"Tax Externalities of Equity Mutual Funds,"
National Tax Journal,
National Tax Association, vol. 53(3), pages 607-628, September.
- John B. Shoven & Joel Dickson & Clemens Sialm, 2000. "Tax Externalities of Equity Mutual Funds," NBER Working Papers 7669, National Bureau of Economic Research, Inc.
- Johnson, Woodrow T., 2010. "Who incentivizes the mutual fund manager, new or old shareholders?," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 143-168, April.
- Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
- Christoffersen, Susan E.K. & Geczy, Christopher C. & Musto, David K. & Reed, Adam V., 2005. "Crossborder dividend taxation and the preferences of taxable and nontaxable investors: Evidence from Canada," Journal of Financial Economics, Elsevier, vol. 78(1), pages 121-144, October.
- Constantinides, George M., 1984. "Optimal stock trading with personal taxes : Implications for prices and the abnormal January returns," Journal of Financial Economics, Elsevier, vol. 13(1), pages 65-89, March.
- George M. Constantinides, 1983. "Optimal Stock Trading with Personal Taxes: Implications for Prices and the Abnormal January Returns," NBER Working Papers 1176, National Bureau of Economic Research, Inc.
- J. B. Chay & Dosoung Choi & Jeffrey Pontiff, 2006. "Market Valuation of Tax-Timing Options: Evidence from Capital Gains Distributions," Journal of Finance, American Finance Association, vol. 61(2), pages 837-865, 04.
- James M. Poterba & John B. Shoven, 2002. "Exchange-Traded Funds: A New Investment Option for Taxable Investors," American Economic Review, American Economic Association, vol. 92(2), pages 422-427, May.
- James M. Poterba & John B. Shoven, 2002. "Exchange Traded Funds: A New Investment Option for Taxable Investors," NBER Working Papers 8781, National Bureau of Economic Research, Inc.
- Barclay, Michael J. & Pearson, Neil D. & Weisbach, Michael S., 1998. "Open-end mutual funds and capital-gains taxes," Journal of Financial Economics, Elsevier, vol. 49(1), pages 3-43, July.
- John R. Graham & Alok Kumar, 2006. "Do Dividend Clienteles Exist? Evidence on Dividend Preferences of Retail Investors," Journal of Finance, American Finance Association, vol. 61(3), pages 1305-1336, 06.
- Bergstresser, Daniel & Poterba, James, 2002. "Do after-tax returns affect mutual fund inflows?," Journal of Financial Economics, Elsevier, vol. 63(3), pages 381-414, March.
- Daniel Bergstresser & James Poterba, 2000. "Do After-Tax Returns Affect Mutual Fund Inflows?," NBER Working Papers 7595, National Bureau of Economic Research, Inc.
- Warther, Vincent A., 1995. "Aggregate mutual fund flows and security returns," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 209-235. Full references (including those not matched with items on IDEAS)