Exchange-Traded Funds and the Wash Sale Loophole

• 成果类型: Article; Early Access
• 署名作者: Dambra, Michael; Glover, Andrew; Lee, Charles M. C.; Quinn, Phillip J.
• 署名单位: State University of New York (SUNY) System; University at Albany, SUNY; University at Buffalo, SUNY; University of Washington; University of Washington Seattle
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2024.06944
• 发表日期: 2026
• 关键词: EXCHANGE-TRADED FUNDS; wash sale rule; institutional investors; personal taxes; Internal Revenue Service

摘要

Tax wash sale rules prohibit the recognition of capital losses when substantially identical securities are sold and immediately repurchased within short windows. This study examines whether institutional investors use exchange-traded funds (ETFs) to circumvent wash sale rules. Consistent with tax-motivated demand for ETFs, incumbent ETFs both create more shares and experience more trading volume upon the introduction of nearly identical ETFs, particularly when recent returns are negative. We show that taxsensitive institutions' investment in highly correlated ETFs has proliferated in recent years, exceeding a quarter of their assets under management. Furthermore, tax-sensitive institutions holding more ETFs are significantly more likely to engage in swapping nearly identical ETFs. This swapping behavior has become widespread, with tax-sensitive institutional investors swapping $417 billion of nearly identical ETFs since 2001. We estimate that taxsensitive institutions realized more than $84 billion dollars in losses in highly correlated ETFs associated with the swapping activity since 2001.