Closed-End Fund Discounts with Informed Ownership Differential

66 Pages Posted: 29 Mar 2000

See all articles by Gustavo Grullon

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

F. Albert Wang

University of Dayton - School of Business Administration - Department of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 2000

Abstract

We develop a theoretical model to examine the closed-end fund discount. Our model identifies three causes for this phenomenon: (i) a self-fulfilling prophecy, (ii) a risk premium for the fund price risk, and (iii) a risk premium for informed ownership differential between the fund and its underlying assets. The model highlights the important role of asymmetric information between institutional and individual investors in explaining the discount and predicts a positive relationship between the discount and the quality of private information in the underlying assets. Using a sample of US equity closed-end funds, we test this prediction and find consistent evidence.

JEL Classification: G12

Suggested Citation

Grullon, Gustavo and Wang, Fukuo Albert, Closed-End Fund Discounts with Informed Ownership Differential (January 2000). Available at SSRN: https://ssrn.com/abstract=204368 or http://dx.doi.org/10.2139/ssrn.204368

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

Fukuo Albert Wang (Contact Author)

University of Dayton - School of Business Administration - Department of Economics and Finance ( email )

300 College Park
Dayton, OH 45469
United States
937-229-3095 (Phone)

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