We document that the well-known January effect largely disappears in U.S. equity Exchange-Traded Funds (ETFs). We also find at the aggregate level that plan sponsors, who enjoy tax-deferred/exempt status, buy past losers at year-end, whereas investment managers, who are taxable on average, tend to sell these losers. The differential aggregate trading behaviors extend to the end of October, the tax year-end for mutual funds, a major class of investment managers. We interpret the trading by plan sponsors as tax arbitraging and the trading by investment managers as tax-loss selling. Further analysis supports our interpretation and suggests that these trading behaviors are driven by the high liquidity of the ETFs.
