TY  - JOUR
AU  - Shoven,John B.
AU  - Dickson,Joel
AU  - Sialm,Clemens
TI  - Tax Externalities of Equity Mutual Funds
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7669
PY  - 2000
Y2  - April 2000
UR  - http://www.nber.org/papers/w7669
L1  - http://www.nber.org/papers/w7669.pdf
N1  - Author contact info:
John B. Shoven
Department of Economics
579 Serra Mall at Galvez Street
Stanford, CA 94305-6015
Tel: 650/723-3273
Fax: 650/723-8611
E-Mail: shoven@stanford.edu

Joel M. Dickson

Clemens Sialm
University of Texas at Austin
McCombs School of Business
1 University Station; B6600
Austin, TX 78712
Tel: 512-232-6835
E-Mail: clemens.sialm@mccombs.utexas.edu
AB  - Investors holding mutual funds in taxable accounts face a classic externality.  The after-tax return of their investment depends on the behavior of others.  In particular, redemptions may force the mutual fund to sell some of its equity positions in order to pay off the liquidating investors.  As a result, it may be forced to distribute taxable capital gains to its shareholders.  On the other hand, new investors convey a positive externality upon existing investors by diluting the unrealized capital gain position of the fund.  This paper's simulations show that these externalities are important determinants of the after-tax performance of equity mutual funds.
ER  -