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An analysis of closed-end funds discounts viewed from a lack of redemption perspective

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  • Jullavut Kittiakarasakun

    (Analytic Focus, LLC)

  • Lalatendu Misra

    (University of Texas at San Antonio)

  • Sinan Yildirim

    (Texas Wesleyan University)

Abstract

We examine the behavior of discounts for an extensive sample of U.S. closed-end funds (CEF) undergoing open-ending. Share prices increase and discounts reduce at the time of announcement. The 2-day abnormal return is approximately one half of the pre-announcement discount. We test and find support for the investor sentiment, transaction costs, and portfolio liquidity hypotheses controlling for fund characteristics, tax liability, and dividends yield. The role of investor sentiment declines following the announcement. We decompose the pre-announcement discount into its structural and idiosyncratic parts, and find that there is a greater reduction of the idiosyncratic part of the discount at the time of announcement. The correlation between discount of CEF undergoing open-ending and that of an index of similar funds declines as the CEF nears open-ending.

Suggested Citation

  • Jullavut Kittiakarasakun & Lalatendu Misra & Sinan Yildirim, 2018. "An analysis of closed-end funds discounts viewed from a lack of redemption perspective," Review of Quantitative Finance and Accounting, Springer, vol. 50(2), pages 415-440, February.
    • Handle: RePEc:kap:rqfnac:v:50:y:2018:i:2:d:10.1007_s11156-017-0634-0
    DOI: 10.1007/s11156-017-0634-0
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    More about this item

    Keywords

    Closed-end funds; Open-ending; Discounts; Investor sentiment; Transaction costs;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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