PT  - JOURNAL ARTICLE
AU  - Darshana D. Palkar
AU  - Peter C. Stimes
AU  - Stephen E. Wilcox
TI  - Predictability and Reasonableness of Discounts and Premiums on Closed-End Funds
AID  - 10.3905/joi.2014.23.4.057
DP  - 2014 Nov 30
TA  - The Journal of Investing
PG  - 57--73
VI  - 23
IP  - 4
4099  - https://pm-research.com/content/23/4/57.short
4100  - https://pm-research.com/content/23/4/57.full
AB  - This article presents a mathematical model for explaining the premiums and discounts to net asset value for closed-end funds. The model does not require (1) constraining assumptions about the underlying price, liquidity, and volatility paths of securities held in the funds, or (2) differential market knowledge between fund investors and fund managers. Our empirical tests show that the observed discounts and premiums for seasoned U.S. closed-end funds are consistent with the model’s explicit predictions regarding payout policy and the relative performance of underlying fund holdings. Consistent with the implicit predictions of the model, our results show that fund size, sentiment, and liquidity also affect how a closed-end fund trades.TOPICS: Mutual funds/passive investing/indexing, performance measurement