Portfolio Selection with Capital Gains Tax, Recursive Utility, and Regime Switching

• 成果类型: Article
• 署名作者: Cai, Jiatu; Chen, Xinfu; Dai, Min
• 署名单位: Universite Paris Cite; Sorbonne Universite; Pennsylvania Commonwealth System of Higher Education (PCSHE); University of Pittsburgh; National University of Singapore; National University of Singapore
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2016.2650
• 发表日期: 2018
• 页码: 2308-2324
• 关键词: portfolio selection; capital gains tax; recursive utility; regime switching

摘要

Capital gains taxation has important implications for investors' portfolio choice decisions. To explore these implications, we develop a continuous time investment and consumption model with capital gains tax, Epstein-Zin recursive utility, and regime switching. We find that various factors, such as tax rate, risk aversion, interest rate, stock return, and volatility, jointly affect optimal portfolio allocation, whereas intertemporal substitution does not. In a regime switching market, investors may trade or stop trading purely because of a change in regime, and there is a distinct cross-regime effect on optimal portfolio allocation. In particular, investors tend to raise stock investment in a bear regime so as to reduce potential tax payments upon regime switching. Given reasonable parameter values, regime switching has a greater impact on optimal portfolio allocation in a bear regime than in a bull regime.