The Secondary Market for Hedge Funds and the Closed Hedge Fund Premium
University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance; Centre for Economic Policy Research (CEPR); University of Oxford - Said Business School
August 3, 2010
Journal of Finance, Forthcoming
Rational theories of the closed-end fund premium puzzle highlight fund share and asset illiquidity, managerial ability and compensation, and fees as important determinants of the premium. Several of these attributes are difficult to measure for mutual funds, and easier to measure for hedge funds. This paper employs new data from a secondary market for hedge funds, discovers a closed hedge fund premium which is highly correlated over time with the closed-end mutual fund premium, and shows that the closed hedge fund premium is well-explained by variables suggested by the rational theories. Sentiment-based explanations do not find support in the data.
Number of Pages in PDF File: 60
Keywords: hedge funds, mutual funds, closed-end fund discount, liquidity, alpha
JEL Classification: G11, G12, G23
Date posted: March 18, 2008 ; Last revised: June 29, 2011
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