Performance Persistence of Closed-End Funds

28 Pages Posted: 18 Jun 2014

See all articles by Elyas Elyasiani

Elyas Elyasiani

Temple University - Department of Finance

Jingyi Jia

Southern Illinois University at Edwardsville - Department of Economics & Finance

Date Written: October 2011

Abstract

Studies of performance persistence of closed-end funds (CEFs) use two measures of persistence; autocorrelation and rank correlation of performance. The autocorrelation measure offers limited information because it cannot separate persistence relative to the market and to the industry. The rank correlation measure is generally applied to two periods, disregarding multi-period persistence. We investigate performance persistence of CEFs in terms of both market price return and net asset value return using contingency tables and multiple regression models. Jensen’s alpha and the Sharpe ratio are used as measures of risk-adjusted performance. We test three hypotheses: (i) CEFs performing better than the industry median will do so persistently, (ii) CEFs outperform the market persistently; and (iii) performance persistence can be partly explained by dividend yield. The findings are fivefold. First, the number of persistent years varies with the models used to calculate risk-adjusted performance. Second, with 4-index unconditional beta fixed variance model, CEFs persistently beat their industry for six out of 10 years in terms of both market price return and net asset value return. Third, with a 4-index unconditional beta fixed variance model, we find performance persistence relative to market for 6 and 7 years, out of the 10 years considered, in terms of market price return and net asset value return, respectively. Fourth, the disaggregate sample tests show that performance of municipal bond funds is more persistent than equity funds and taxable bond funds. Fifth, dividend patterns can partially explain persistence with liquidity as control.

Keywords: Closed-end fund, Persistence, Contingency tables, Jensen’s alpha

Suggested Citation

Elyasiani, Elyas and Jia, Jingyi, Performance Persistence of Closed-End Funds (October 2011). Review of Quantitative Finance and Accounting, Vol. 37, No. 3, 2011, pp.381-408. Available at SSRN: https://ssrn.com/abstract=2451147

Elyas Elyasiani (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

Jingyi Jia

Southern Illinois University at Edwardsville - Department of Economics & Finance ( email )

Edwardsville, IL 62026
United States

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