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Working Paper

Limitation on Trader Fund Losses under the CARES Act of 2020

This paper provides a simple unifying framework for value and momentum effects in asset pricing based on the present value model. Backing out reliable expected returns from the present value model requires valuation ratios that adjust for expected future earnings growth. We show empirically that stock price momentum forecasts future growth, helps to improve value’s forecast for expected returns, and is drowned out when accounting for realized growth.

Journal Article

Integration of Income and Estate Tax Planning

Preservation and transfer of wealth to future generations is one of the central financial goals for most high-net-worth families. We show that a family that invests with income and estate tax efficiency in mind can achieve substantially higher wealth levels than a family oblivious to taxes.

White Paper

Understanding a Tax-Aware Defensive Equity Long-Short Strategy

We describe a hypothetical Tax-Aware Defensive Equity Long-Short strategy, including its construction and pre-tax and after-tax performance. The strategy closely replicates the pre-tax performance of a similar hypothetical tax-agnostic strategy and has the potential to achieve a meaningful tax benefit for a taxable investor.

Interview

Meet the Expert: Nathan Sosner on Tax-Aware Investing

AQR Principal Nathan Sosner explains the basics of tax-aware strategies and why taxable investors should consider them.

Journal Article

Lot Layering: The New Frontier for Hedge Fund Partnership Allocations

Despite its unavoidable deficiency caused by current regulations, we believe that lot layering aligns tax and economics more closely than any of the “aggregation” methods presently used by most hedge funds.

Journal Article

Should Taxable Investors Shun Dividends?

We evaluate the tax benefit of dividend avoidance for quantitative multi-style strategies and find that dividend avoidance generally reduces implementation efficiency, thus lowering expected pre-tax returns.

White Paper

Understanding the Tax Efficiency of Relaxed-Constraint Equity Strategies

A guide to tax-aware relaxed constraint strategies that also tries to enlighten investors on the nuances around tax benefits by comparing different tax-aware strategies with an equity beta of one.

Journal Article

The Tax Benefits of Relaxing the Long-Only Constraint: Do They Come from Character or Deferral?

Are there tax benefits from relaxation of the long-only constraint? If so, what are the sources? To answer these questions, we decompose the total tax benefit (or liability) of a strategy into two components.

Journal Article

The Tax Benefits of Separating Alpha from Beta

We show how separating a portfolio into an active long-short portfolio and a passive index portfolio can have significant tax benefits.

Journal Article

Partnership Allocations and Their Effects on Tax-Aware Fund Investors

We discuss certain accounting principles relevant for investors in tax-aware funds structured as limited partnerships. We present a simple stylized model that illustrates that under such accounting principles new investors do not materially suffer from unrealized gains accumulated in a tax-aware fund.