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Abstract: 

This paper examines the performance seasonality of municipal bond funds and the municipal market. It finds evidence of negative seasonal returns for the municipal market in March from 1980 to 2007, which the authors attribute to an increase in municipal issuance in March and a lack of participation by individual investors as buyers in anticipation of the April 15 tax deadline. The authors confirm the January effect found in previous studies but find no January effect since 1993 for either the funds or the market. The January effect found previously was not the effect of the funds per se, and there are two possible explanations for its absence in the market in recent years: (1) a decline in ownership by individual investors, who tend to engage in tax-loss selling at year-end and (2) strong performance of municipal bonds during our sample period, which results in few losses at year-end.

Keywords: January Effect; March Effect; shift in ownership structure; new issue volume; trading volume

Affiliations:  1: Penn State University; 2: Penn State University.