PT - JOURNAL ARTICLE AU - Stephen M. Horan AU - Ashraf Al Zaman TI - Tax-Adjusted Portfolio Optimization and Asset Location: <em>Extensions and Synthesis</em> AID - 10.3905/jwm.2008.11.3.056 DP - 2008 Oct 31 TA - The Journal of Wealth Management PG - 56--73 VI - 11 IP - 3 4099 - https://pm-research.com/content/11/3/56.short 4100 - https://pm-research.com/content/11/3/56.full AB - Models developed in a pretax framework do not necessarily apply in an after-tax framework, and this notion certainly applies to portfolio optimization. This article derives generalized tax adjustments to return and volatility inputs in an after-tax portfolio optimization algorithm. It extends the literature by incorporating an asset’s cost basis, addressing a broader array of taxable entities, and deriving expressions for off-diagonal terms in the covariance matrix. They develop a comprehensive framework that distinguishes between tax-adjustments predicated on pretax market values and after-tax values. The distinction is important so that portfolio managers can avoid inadvertently blending two inconsistent approaches.TOPICS: Portfolio construction, legal/regulatory/public policy, performance measurement