Termination of closed end funds and behavior of their discounts

Lalatendu Misra, Jullavut Kittiakarasakun and Sinan Yildirim
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Lalatendu Misra: The University of Texas at San Antonio
Jullavut Kittiakarasakun: The University of Texas at San Antonio
Sinan Yildirim: Texas Wesleyan University

No 93, 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, we examine the behavior of discounts prior to the announcement till 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, and other hypothesized characteristics of the fund and investor behavior. The role of investor sentiments as an explanator of discounts is weaker after announcement. We decompose the pre-announcement discount into structural and idiosyncratic parts, and report that there is a greater reduction of the idiosyncratcic part of the discount at announcement. Time series behavior of discounts lends support to investor confidence. We find that small amounts of discounts remain at the time of the open-ending.

Keywords: Closed-end funds; open-ending; discounts; investor sentiment. (search for similar items in EconPapers)
JEL-codes: G14 G33 G34 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2009-06-24
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