@article {Sosnerjwm.2019.1.068, author = {Nathan Sosner and Stanley Krasner and Ted Pyne}, title = {The Tax Benefits of Relaxing the Long-Only Constraint: Do They Come from Character or Deferral?}, elocation-id = {jwm.2019.1.068}, year = {2019}, doi = {10.3905/jwm.2019.1.068}, publisher = {Institutional Investor Journals Umbrella}, abstract = {In this study, we propose a decomposition of the total tax benefit (or liability) of a strategy into what we define as character and deferral components. Our decomposition is mathematically straightforward and intuitive, and it allows for a quick and informative assessment of tax benefits of different tax-aware strategies without modeling various investor-specific situations. We use this character-deferral decomposition to identify the source of tax benefits resulting from relaxation of the long-only constraint. Our empirical evidence shows that, for tax-aware strategies, relaxing the long-only constraint results in a drastic increase in their tax benefits, in particular owing to an increase in the character benefit. We conclude that tax-aware relaxed-constraint strategies are more attractive to taxable investors than their long-only counterparts.}, issn = {1534-7524}, URL = {https://jwm.pm-research.com/content/early/2019/01/08/jwm.2019.1.068}, eprint = {https://jwm.pm-research.com/content/early/2019/01/08/jwm.2019.1.068.full.pdf}, journal = {The Journal of Wealth Management} }