Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5090916 | Journal of Banking & Finance | 2007 | 22 Pages |
Abstract
Taxable portfolios present challenges for optimization models with even a limited number of assets. Holding many assets, however, has a distinct tax advantage over holding few assets. In this paper, we develop a model that takes an extreme view of a portfolio as a continuum of assets to gain the broadest possible advantage from holding many assets. We find the optimal strategy for trading in this portfolio in the absence of transaction costs and develop bounding approximations on the optimal value. We compare the results in a simulation study to a portfolio consisting only of a market index and show that the multi-asset portfolio's tax advantage can lead either to significant consumption or bequest increases.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
John R. Birge, Song Yang,