"Dividend Withholding Taxes and the Performance of European Index Funds"



European index funds and exchange-traded funds fall short of their benchmarks by 50 to 150 basis points per annum. This underperformance is significantly larger than the shortfall reported for U.S passive funds and also larger than one would expect based on the funds’ reported expenses. We show that the underperformance can be attributed to European funds suffering a significant performance drag as a result of dividend withholding taxes. Dividend withholding taxes and fund expenses have a comparable impact on fund performance and jointly explain the entire performance shortfall. In addition, dividend taxes explain performance differences between funds tracking different benchmark indexes and are an important determinant for time variation in fund performance. Our results have significant implications for performance evaluation of mutual funds that are confronted with dividend withholding taxes.

If you would like to join the mailing list or if you are interested in presenting your work in this seminar, please contact me (gryglewicz@ese.eur.nl). We still have some dates available in the fall of 2009.

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The Brown Bag Seminars are sponsored by ERIM.
Contact information:
Sebastian Gryglewicz