The Risk and Return of Closed-End and Open-End Municipal Bond Funds

Patrick Cusatis and Oranee Tawatnuntachai

Municipal Finance Journal, 2018, vol. 39, issue 3, 71 - 90

Abstract: This study compares the performance and persistence of closed-end and open-end municipal bond funds. The funds have structural differences; closed-end funds differ from open-end funds in that they lack share redemptions, hold longer term bonds, and have the ability to use leverage. The authors evaluate whether municipal bond fund investors benefit from these differences and find that although raw returns are significantly higher for closed-end funds, risk-adjusted returns are not. In addition, closed-end funds are subject to risks from outside the municipal bond market. There is no evidence of performance persistence by municipal fund managers of either fund structure, and the findings suggest that investors are not better off with closed-end, rather than open-end, municipal funds.

Date: 2018
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