TY - JOUR T1 - The Tax Benefits of Relaxing the Long-Only Constraint: <em>Do They Come from Character or Deferral?</em> JF - The Journal of Wealth Management SP - 10 LP - 31 DO - 10.3905/jwm.2019.1.068 VL - 21 IS - 4 AU - Nathan Sosner AU - Stanley Krasner AU - Ted Pyne Y1 - 2019/01/31 UR - https://pm-research.com/content/21/4/10.abstract N2 - 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.TOPICS: Wealth management, portfolio construction, legal/regulatory/public policy, quantitative methods ER -