IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v29y1994i02p301-321_00.html
   My bibliography  Save this article

Immunization in Markets with Tax-Clientele Effects: Evidence from the Canadian Market

Author

Listed:
  • Prisman, Eliezer Z.
  • Tian, Yisong

Abstract

Empirical immunization studies have considered the efficacy of immunization strategies, in which the durations of assets and of liabilities are equated, against a strategy involving maturity matching. However, all these studies have ignored tax effects. In the presence of tax-clientele effects, immunization requires that the portfolio consists only of bonds that are correctly priced for a particular clientele. Testing for these effects, therefore, requires the identification of the correctly priced bonds for the investors in the clientele. However, since bond prices contain noise, determining these bonds is still an unresolved problem. Consequently, an empirical test of the magnitude of the error caused by ignoring taxes may be an impossible task in some markets, and indeed has never been conducted. The Canadian bond market provides perfect laboratory conditions for such a test. Tax-clientele effects are present in the Canadian market, and among the clienteles is a representative clientele. This paper examines the tax effects on immunization strategies. The results show that the error caused by ignoring tax effects is not negligible, and practitioners should use immunization with reference to tax effects.

Suggested Citation

  • Prisman, Eliezer Z. & Tian, Yisong, 1994. "Immunization in Markets with Tax-Clientele Effects: Evidence from the Canadian Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(2), pages 301-321, June.
    • Handle: RePEc:cup:jfinqa:v:29:y:1994:i:02:p:301-321_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109000008942/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nawalkha, Sanjay K. & Soto, Gloria M. & Zhang, Jun, 2003. "Generalized M-vector models for hedging interest rate risk," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1581-1604, August.
    2. Landon, Stuart, 2009. "The capitalization of taxes in bond prices: Evidence from the market for Government of Canada bonds," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2175-2184, December.
    3. repec:taf:apfiec:v:21:y:2011:i:10:p:695-705 is not listed on IDEAS
    4. Halpern, Paul & Rumsey, John, 1997. "A note on market efficiency, institutional practice, and economic constraints in the experience of the Canadian bond market," Journal of Banking & Finance, Elsevier, vol. 21(1), pages 113-123, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:29:y:1994:i:02:p:301-321_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.