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Primary Article

Closed-End Equity Funds

Betting on Discounts and Premiums

Nusret Cakici, Anthony Tessitore and Nilufer Usmen
The Journal of Investing Winter 2000, 9 (4) 83-92; DOI: https://doi.org/10.3905/joi.2000.319443
Nusret Cakici
Associate professor of finance at The City College of New York.
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Anthony Tessitore
Portfolio manager at City of London Quantitative Management in Edison, New Jersey.
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Nilufer Usmen
Associate professor of finance at Montclair State University in Upper Montclair, New Jersey.
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Abstract

Can discounts and premiums on closed-end equity funds be used to earn positive excess returns over a benchmark index? Research in the U.S. market has found that investors could have earned higher returns than a benchmark of U.S. stocks by purchasing shares of closed-end funds with discounts. This research examines an extensive sample of U.S. and U.K. listed closed-end funds September 4, 1998, through 1991, including transaction costs, an important element in evaluating portfolio performance that is absent from previous work. While long portfolios with deep discounts outperform a benchmark index, provided transaction costs are low, the surprise is that short portfolios with deep premiums outperform the benchmark and long portfolios, provided transaction costs are moderate to high.

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The Journal of Investing
Vol. 9, Issue 4
Winter 2000
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Closed-End Equity Funds
Nusret Cakici, Anthony Tessitore, Nilufer Usmen
The Journal of Investing Nov 2000, 9 (4) 83-92; DOI: 10.3905/joi.2000.319443

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Closed-End Equity Funds
Nusret Cakici, Anthony Tessitore, Nilufer Usmen
The Journal of Investing Nov 2000, 9 (4) 83-92; DOI: 10.3905/joi.2000.319443
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More in this TOC Section

  • Return Predictability and the P/E Ratio
  • Estimating the Risk of Guaranteed Products
  • Deep-Value Investing, Fundamental Risks, and the Margin of Safety
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