The theoretical effects of taxation on portfolio composition are ambiguous.

Question

Quizplus · Accepted Answer

Taxation can lead to a variety of effects on portfolio composition, depending on factors such as the type of tax, the level of tax rates, the investor's risk appetite, and the availability of tax-advantaged investment options. Some possible effects include a shift towards tax-exempt or tax-deferred investment vehicles, a preference for low-yield but tax-efficient investments, a reduction in trading activity to minimize capital gains taxes, and a decrease in investment in sectors or assets that are heavily taxed. However, the overall impact of taxation on portfolio composition is uncertain and can vary based on individual circumstances.

The Theoretical Effects of Taxation on Portfolio Composition Are Ambiguous