Tax Calendar Effects in the Municipal Bond Market: Tax-Loss Selling and Cherry Picking by Investors and Market Timing by Fund Managers


  • The authors would like to thank Peter Egly and an anonymous referee for helpful comments.

Department of Economics and Finance, College of Business, University of Texas-Pan American, 1201 W. University Drive, Edinburg, TX 78539; Phone: (956) 665-3338; Fax: (956) 665-5020; E-mail:


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.