RT Journal Article
SR Electronic
T1 The Tax Option in Municipal Bonds
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 94
OP 102
DO 10.3905/jpm.2014.40.2.094
VO 40
IS 2
A1 Andrew Kalotay
A1 C. Douglas Howard
YR 2014
UL https://pm-research.com/content/40/2/94.abstract
AB Tax-loss harvesting is an idea that has been around for decades. This article tries to quantify the value of this tax option embedded in municipal bonds. The authors first develop an algorithm that optimizes the timing of taking tax losses. Using this algorithm, they determine the expected tax benefit that can be extracted over a bond’s lifetime. Under realistic assumptions, the value of the tax option embedded in a long-term bond amounts to several points.TOPICS: Legal and regulatory issues for structured finance, volatility measures