Valuing Investment Management Fees, Active Portfolio Management, and Closed-End Fund Discounts
37 Pages Posted: 27 Feb 2016 Last revised: 25 Apr 2016
Date Written: December 10, 2000
Risk-neutral valuation is used to value a portfolio and decompose it into the components accruing to its stakeholders. The analysis incorporates managers’ expected performance and contract renewal issues. A managed portfolio’s economic value is shown to differ from its net asset value. A better foundation for computing fair closed-end fund discounts and a partial explanation of equilibrium in the markets for open and closed-end mutual funds are provided. Tests on the behavior of net redemptions following closed-end fund open-endings and the relation between premiums and investment performance around IPOs strongly support the paper’s theory.
Keywords: Risk-Neutral Valuation, Investment Management Fees, Active Management, Closed-End Fund Discounts
JEL Classification: G10, G11, G13, G12, G14
Suggested Citation: Suggested Citation