The Secondary Market for Hedge Funds and the Closed Hedge Fund Premium

Ramadorai, Tarun

doi:10.2139/ssrn.1106654

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The Secondary Market for Hedge Funds and the Closed Hedge Fund Premium

Journal of Finance, Forthcoming

60 Pages Posted: 18 Mar 2008 Last revised: 4 Aug 2010

See all articles by Tarun Ramadorai

Tarun Ramadorai

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

There are 2 versions of this paper

Date Written: August 3, 2010

Abstract

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.

Keywords: hedge funds, mutual funds, closed-end fund discount, liquidity, alpha

JEL Classification: G11, G12, G23

Suggested Citation: Suggested Citation

Ramadorai, Tarun, The Secondary Market for Hedge Funds and the Closed Hedge Fund Premium (August 3, 2010). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1106654 or http://dx.doi.org/10.2139/ssrn.1106654