The Reaction of Closed End Funds to Stock Distribution Announcements

Abstract

This study examines the impact of stock split and stock dividend announcements made by closed end mutual funds. We argue that the asymmetric information / signaling hypothesis does not apply to mutual funds. Therefore, any announcement effects must be attributed to other factors such as the optimal trading range hypothesis. We find that closed end funds react no differently than other firms to stock distribution announcements; also, trading volume and turnover remain unchanged after closed end funds? ex-stock distribution days, while liquidity declines for other firms that distribute shares.

JEL Classification: G12, G14