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Why Do Closed-End Bond Funds Exist? An Additional Explanation for the Growth in Domestic Closed-End Bond Funds

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  • Elton, Edwin J.
  • Gruber, Martin J.
  • Blake, Christopher R.
  • Shachar, Or

Abstract

This paper provides a new explanation for why closed-end bond funds coexist along with otherwise identical open-end bond funds. Closed-end bond funds offer investors the opportunity to leverage their fixed income investment at very low borrowing rates and are attractive to investors for this reason. We find that differences in leverage are reflected in the discount on closed-end bond funds in a manner consistent with the advantage of leverage.

Suggested Citation

  • Elton, Edwin J. & Gruber, Martin J. & Blake, Christopher R. & Shachar, Or, 2013. "Why Do Closed-End Bond Funds Exist? An Additional Explanation for the Growth in Domestic Closed-End Bond Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(2), pages 405-425, April.
    • Handle: RePEc:cup:jfinqa:v:48:y:2013:i:02:p:405-425_00
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    Cited by:

    1. Binghui Wu & Tingting Duan & Jianmin He, 2018. "Dynamics Evolution of Trading Strategies of Investors in Financial Market," Computational Economics, Springer;Society for Computational Economics, vol. 51(4), pages 743-760, April.
    2. Piccotti, Louis R., 2020. "Strategic trade when securitized portfolio values are unknown," Journal of Banking & Finance, Elsevier, vol. 115(C).
    3. Benjamin Golez & Jens Jackwerth & Anna Slavutskaya, 2024. "Funding Illiquidity Implied by S&P 500 Derivatives," Risks, MDPI, vol. 12(9), pages 1-33, September.
    4. Souther, Matthew E., 2016. "The effects of takeover defenses: Evidence from closed-end funds," Journal of Financial Economics, Elsevier, vol. 119(2), pages 420-440.
    5. Youchang Wu & Russ Wermers & Josef Zechner, 2016. "Managerial Rents vs. Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds," The Review of Financial Studies, Society for Financial Studies, vol. 29(12), pages 3428-3470.
    6. Kryzanowski, Lawrence & Mohebshahedin, Mahmood, 2016. "Board governance, monetary interest, and closed-end fund performance," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 196-217.
    7. Bredin, Don & Cuthbertson, Keith & Nitzsche, Dirk & Thomas, Dylan C., 2014. "Performance and performance persistence of UK closed-end equity funds," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 189-199.
    8. Liang Ma, 2024. "What drives closed‐end fund discounts? Evidence from COVID‐19," Financial Management, Financial Management Association International, vol. 53(1), pages 119-143, March.
    9. Jonathan Fletcher, 2022. "Exploring the diversification benefits of US international equity closed-end funds," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(3), pages 297-320, September.
    10. Fletcher, Jonathan, 2018. "An empirical examination of the diversification benefits of U.K. international equity closed-end funds," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 23-34.
    11. Dilip Patro & Louis R. Piccotti & Yangru Wu, 2017. "Exploiting Closed-End Fund Discounts: A Systematic Examination Of Alphas," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 40(2), pages 223-248, June.

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