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: 19 Jun 2024

See all articles by Allen Carrion

Allen Carrion

University of Memphis - Fogelman College of Business and Economics

Jiang Zhang

University of St. Thomas - Opus College of Business

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

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

Allen Carrion

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

Jiang Zhang (Contact Author)

University of St. Thomas - Opus College of Business

2115 Summit Ave.
St. Paul, MN 55015
United States

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