Please use this identifier to cite or link to this item: 
Year of Publication: 
Series/Report no.: 
CPQF Working Paper Series No. 24
Frankfurt School of Finance & Management, Centre for Practical Quantitative Finance (CPQF), Frankfurt a. M.
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.
capital gain tax
expected return
expected utility
financial instruments
flat tax
historical simulation
investment certificates
return shaping
risk-return profiles
stochastic dominance
structured products
Document Type: 
Working Paper

Files in This Item:

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.