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Bridge over ocean
1 May 1994 Financial Analysts Journal Volume 50, Issue 3

Transient Effects in Taxable Equity Investments

  1. Glyn A. Holton

The analytical methods applied to tax-exempt investments cannot always be applied in the same way to investments that are subject to taxation. Taxable investment is complicated by, among other things, timing effects. The deferral of taxes on some investments, versus the immediate taxation of others, produces performance transients--extraordinary after-tax returns that reverse themselves in subsequent periods. These transients have implications for taxable portfolio returns--implications that are not always easy to predict.

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