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CPQF Working Paper Series, Frankfurt School of Finance and Management >
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http://hdl.handle.net/10419/40188
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| Title: | | Investment certificates under German taxation: Benefit or burden for structured products' performance?  |
| Authors: | | Scholz, Peter Walther, Ursula |
| Issue Date: | | 2010 |
| Series/Report no.: | | CPQF Working Paper Series 24 |
| Abstract: | | Despite their impressive market success, investment certificates' benefits are puzzling from both a theoretical and an empirical viewpoint. Previous research analyzed portfoliotheoretical issues, mispricing patterns, and counterparty risk. This work highlights the impact of taxation, which has not been previously addressed for these instruments. In order to capture tax effects, we simulate the entire return distributions of several structured products under the two most recent German taxation systems. Evaluation is done based on the concepts of stochastic dominance as well as expected utility. For the latter, we use both a risk neutral and a loss averse value function. Individual preferences prove relevant especially for those instruments that have been tailored to loss averse investors. We find significant tax effects, but they depend on the particular tax regime and the structure of the instrument. Interestingly, the introduction of the final withholding tax system substantially diminishes previously existing tax advantages. |
| Subjects: | | Abgeltungsteuer bootstrapping capital gain tax expected return expected utility financial instruments flat tax Halbeinkünfteverfahren historical simulation investment certificates return shaping risk-return profiles stochastic dominance structured products taxation |
| JEL: | | G11 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CPQF Working Paper Series, Frankfurt School of Finance and Management
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