Systematic Risk and the Muni Puzzle

John M.R. Chalmers

National Tax Journal, 2006, vol. 59, issue 4, 833-48

Abstract: The muni puzzle refers to the empirical fact that relative to taxable bond yields, long–term tax–exempt yields are significantly higher than predicted by theory, while short–term yields conform well to theory. The systematic risk hypothesis is a candidate to explain the muni puzzle. I find that risk characteristics of government and municipal bond portfolio returns are very similar across the term structure. From this evidence, I conclude that systematic risk is unlikely to explain the muni puzzle. I also illustrate that a tax adjustment to duration is important when comparing the expected volatility of bonds with different tax status.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.17310/ntj.2006.4.05 (application/pdf)
https://doi.org/10.17310/ntj.2006.4.05 (text/html)
Access is restricted to subscribers and members of the National Tax Association.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:59:y:2006:i:4:p:833-48

Access Statistics for this article

National Tax Journal is currently edited by Stacy Dickert-Conlin and William M. Gentry

More articles in National Tax Journal from National Tax Association, National Tax Journal Contact information at EDIRC.
Bibliographic data for series maintained by The University of Chicago Press ().