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

Jullavut Kittiakarasakun, Lalatendu Misra () and Sinan Yildirim
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Jullavut Kittiakarasakun: Analytic Focus, LLC
Lalatendu Misra: University of Texas at San Antonio
Sinan Yildirim: Texas Wesleyan University

Review of Quantitative Finance and Accounting, 2018, vol. 50, issue 2, No 3, 415-440

Abstract: 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.

Keywords: Closed-end funds; Open-ending; Discounts; Investor sentiment; Transaction costs (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G20 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-017-0634-0

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