Prior Performance and Closed-End Fund Discounts
University of Nottingham Economics Discussion Paper No. 03/16
39 Pages Posted: 19 Dec 2003
Date Written: September 2003
In open-end funds, net inflows are positively correlated with past performance. This study investigates how past net asset value (NAV) returns affect the premium on closed-end funds traded in the United States and the United Kingdom. Past performance is significantly priced in stock funds, although NAV returns are persistent only for bond funds. In the United States, where realized capital gains are paid out as dividends, investors appear to interpret dividend flows as evidence of skill. There is substantial short-run inertia in fund prices, which tests indicate is explained to some extent by staleness of reported NAVs.
Keywords: closed-end fund, discount, return
JEL Classification: G12
Suggested Citation: Suggested Citation