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Tax Calendar Effects in the Municipal Bond Market: Tax‐Loss Selling and Cherry Picking by Investors and Market Timing by Fund Managers
Author(s) -
Chen Haiwei,
Estes Jim,
Ngo Thanh
Publication year - 2011
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2011.00317.x
Subject(s) - income fund , business , feeder fund , finance , bond , closed end fund , fund administration , open end fund , investment fund , bond market , financial system , monetary economics , institutional investor , economics , market liquidity , corporate governance
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.