The effect of data availability in measuring fund managers' after-tax alphas

Authors

Zhe Chen, Centre for International Finance and Regulation, University of New South Wales
David R. Gallagher, Centre for International Finance and Regulation, University of New South Wales, Macquarie University, Capital Markets CRC LimitedFollow
Geoffrey Warren, Centre for International Finance and Regulation,

RIS ID

118641

Publication Details

Chen, Z., Gallagher, D. R. & Warren, G. J. (2019). The effect of data availability in measuring fund managers' after-tax alphas. Accounting and Finance, 59 (S1), 411-448.

Abstract

We examine potential sources of measurement error when evaluating the after-tax performance of fund managers based on periodic snapshots of their holdings alone, compared with when daily transactions data are also available. To do this, we compare portfolio return estimates based on imputed trades from monthly, quarterly and semi-annual snapshots with estimates that also incorporate daily trades for a sample of active institutional equity portfolios. This method allows us to directly measure the contribution of interim trading before tax, while more accurately estimating the tax effects associated with turnover through observing actual trade prices. Further, availability of both trade and holdings data permits the identification of how contributions and tax effects arise from income and capital gains sources, as well as how they vary across investment styles and market conditions.