The authors would like to thank Peter Egly and an anonymous referee for helpful comments.
Tax Calendar Effects in the Municipal Bond Market: Tax-Loss Selling and Cherry Picking by Investors and Market Timing by Fund Managers
Article first published online: 5 OCT 2011
© 2011, The Eastern Finance Association
Volume 46, Issue 4, pages 703–721, November 2011
How to Cite
Chen, H., Estes, J. and Ngo, T. (2011), Tax Calendar Effects in the Municipal Bond Market: Tax-Loss Selling and Cherry Picking by Investors and Market Timing by Fund Managers. Financial Review, 46: 703–721. doi: 10.1111/j.1540-6288.2011.00317.x
- Issue published online: 5 OCT 2011
- Article first published online: 5 OCT 2011
- municipal bond;
- fund flows;
- fund managers;
- tax-loss selling
Examining municipal bond returns, bond fund flows and buying activities by fund managers over the period 1990–2009, we find evidence of tax calendar-related rational opportunistic trading patterns by fund investors and fund managers. Specifically, fund shareholders conduct tax-loss selling in December and re-invest in January. In April, June, and September, fund investors rationally cherry pick to sell their shares of short-term bond funds instead of their shares of long-term bond funds to raise cash to pay estimated taxes. Unlike fund shareholders, fund managers adopt a contrarian strategy of buying in December and selling in January.