Return seasonality and tax-loss selling in the market for long-term government and corporate bonds

Abstract

We document a January seasonal in the U.S. market for long-term corporate bonds that becomes more evident as the bond rating declines. Moreover, a similar, but weaker, relation is observed for the stocks of firms with low-quality bonds. These patterns may relate to firm size since bond ratings and firm size in our sample are positively related. However, even our smallest firms are relatively large. Much of the January effect we document appears to be consistent with the tax-loss selling hypothesis.