Tax-Loss Selling and the January Effect Revisited: Evidence From Municipal Bond Closed-end Funds and Exchange-Traded Funds

We revisit the tax-loss selling hypothesis as an explanation of the January effect. We expand on prior empirical evidence from municipal bond closed-end funds (CEFs) by extending the sample period by 19 years and adding exchange-traded funds (ETFs). Our sample covers the introduction and rapid growth of municipal bond ETFs, significant changes to municipal bond market structure, and the modernization of tax-loss selling practices. The January effect in municipal bond CEFs has become stronger in recent years and is consistent with the tax-loss hypothesis. The January effect in municipal bond ETFs is smaller and cannot be explained by tax-loss selling.

Keywords: January effect, Tax-loss selling, Municipal bonds, Closed-end funds, Exchange-traded funds

JEL Classification: G12, G14

Suggested Citation: Suggested Citation

Carrion, Allen and Zhang, Jiang, Tax-Loss Selling and the January Effect Revisited: Evidence From Municipal Bond Closed-end Funds and Exchange-Traded Funds (August 18, 2021). Darden Business School Working Paper No. 3907044, Journal of Financial Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3907044 or http://dx.doi.org/10.2139/ssrn.3907044