The behavior of discounts of closed-end funds undergoing open-ending

Karan Bhanot, Valeria Martinez, Lalatendu Misra, Jullavut Kittiakaraskun and Sinan Yildirim
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Karan Bhanot: University of Texas at San Antonio
Valeria Martinez: Fairfield University
Lalatendu Misra: University of Texas at San Antonio
Jullavut Kittiakaraskun: University of North Carolina, Pembroke
Sinan Yildirim: University of Texas at San Antonio

No 92, Working Papers from College of Business, University of Texas at San Antonio

Abstract: Based on an extensive sample of U.S. closed-end funds undergoing open-ending conversion, we examine the behavior of discounts prior to the announcement till the date of open-ending. Discounts are significantly reduced upon announcement of open-ending with price increase. Announcement period return is directly related to the pre-announcement discount, liquidity, and other characteristics of the fund. We decompose the pre-announcement discount into structural and diosyncratic parts, and report that there is a greater reduction of the idiosyncratcic part of the discount. We examine the role of distributions to the investors on the size and behavior of discounts subsequent to the open-ending announcement. We find that small amounts of discounts remain at the time of the open-ending and investigate potential explanations for such discounts.

Keywords: closed-end funds; discount (search for similar items in EconPapers)
JEL-codes: G3 G30 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2008-05-29
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