Tax‐loss selling and the January effect revisited: Evidence from municipal bond closed‐end funds and exchange‐traded funds

Allen Carrion and Jiang Zhang

Journal of Financial Research, 2024, vol. 47, issue 4, 1207-1227

Abstract: We 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.

Date: 2024
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https://doi.org/10.1111/jfir.12384

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:47:y:2024:i:4:p:1207-1227

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