Tax‐loss selling and the January effect revisited: Evidence from municipal bond closed‐end funds and exchange‐traded funds
In: The journal of financial research: the journal of the Southern Finance Association and the Southwestern Finance Association
ISSN: 1475-6803
AbstractWe revisit the tax‐loss selling hypothesis as an explanation for 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.