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The Influence Of Illiquid Assets On Prices

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  • Michael N. Baur
  • Omar Benkato
  • Socorro M. Quintero

Abstract

There are fundamental differences between assets held by closed and open-end funds. Past research indicates that closed-end funds are less liquid than open-end funds. For example, a larger percentage of closed-end funds hold less liquid international securities. This paper surveys the existing evidence of the impact of illiquid assets on the prices of open and closed-end funds. Specifically, it surveys existing literature on whether the price discount typically observed on closed-end funds is the expected result given the inescapable costs associated with managing relatively illiquid assets in closed-end funds. This paper synthesizes the various observations into one coherent theme: illiquid assets appear to be a significant source of the differences in the behavior we observe between open and closed-end funds. For a broader audience, this sheds light on valuation issues related to illiquid assets by looking at the case study of closed-end funds.

Suggested Citation

  • Michael N. Baur & Omar Benkato & Socorro M. Quintero, 2003. "The Influence Of Illiquid Assets On Prices," New York Economic Review, New York State Economics Association (NYSEA), vol. 34(1), pages 51-62.
    • Handle: RePEc:nye:nyervw:v:34:y:2003:i:1:p:51-62
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    References listed on IDEAS

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    1. Patro, Dilip Kumar, 2001. "Measuring performance of international closed-end funds," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1741-1767, September.
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