“Nothing is certain except death and taxes.”
– Benjamin Franklin

We mentioned in some previous posts (here and here) that we had a white paper in the works that explores the trade-off between investment decisions and short-/long-term capital gains taxes in a quantitative framework using spread options.  It is now published and can be accessed here.

We also put together a summary document that focuses on some of the more intuitive aspects of taxes and trading.  Here is an excerpt from that paper:

Tactical strategies rely on a variety of methods for selecting assets that should be bought or sold to meet investment objectives. Financial advisors also make similar decisions in client accounts. Considering these decisions in isolation neglects the very real impact of taxes on the overall outcome in after-tax accounts. Each decision to trade must be examined in the context of taxes. Thus, the central question is: When do the benefits from trading outweigh the costs of taxes?

The summary can be accessed here.  We hope you enjoy our quantitative exploration into one of the certainties in life!

Nathan is a Portfolio Manager at Newfound Research, a quantitative asset manager offering a suite of separately managed accounts and mutual funds. At Newfound, Nathan is responsible for investment research, strategy development, and supporting the portfolio management team. Prior to joining Newfound, he was a chemical engineer at URS, a global engineering firm in the oil, natural gas, and biofuels industry where he was responsible for process simulation development, project economic analysis, and the creation of in-house software. Nathan holds a Master of Science in Computational Finance from Carnegie Mellon University and graduated summa cum laude from Case Western Reserve University with a Bachelor of Science in Chemical Engineering and a minor in Mathematics.