Closed-End Fund Discounts and Expected Investment Performance
The Financial Review, 39 (2004) 179-202
25 Pages Posted: 7 Oct 2013
Date Written: 2004
This article provides empirical support for the theory that closed-end fund discounts reflect expected investment performance. Evidence is presented to explain how equity closed-end fund initial public offerings (IPOs) can sell at a premium when existing funds sell at a discount and why the initial IPO premiums decay after the IPO. Relative premium decay data are presented. Tests on (1) the relation between relative premium changes and investment performance following IPOs, (2) relative premium mean-reversion following management changes, and (3) net redemptions following closed-end fund open-endings for funds trading at pre-open-ending announcement discounts individually support and collectively strongly support the theory.
Keywords: closed end fund discounts, performance
JEL Classification: G10, G11, G12, G13
Suggested Citation: Suggested Citation