Tax-Loss Selling and the January Effect Revisited: Evidence From Municipal Bond Closed-end Funds and Exchange-Traded Funds
Darden Business School Working Paper No. 3907044
Journal of Financial Research, Forthcoming
39 Pages Posted: 19 Aug 2021 Last revised: 21 Jul 2023
Date Written: August 18, 2021
Abstract
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