Beware the Bounce: Tax-Loss Harvesting during a Stock Market Crash

We compare three different approaches to mitigating post-crash underperformance risk associated with tax-loss harvesting strategies: a stock-bounds approach, a risk model approach, and an enhanced risk model approach, adding extra controls on factors associated with reversal risk. We analyze the reversal risk by conducting a comprehensive sweep, evaluating the performance of 60,000 realistically simulated accounts over the past 25 years, and quantifying the extent of pre-tax underperformance during the most stressful periods for index tracking.