Closed-end fund discounts and premiums

Abstract

This paper has two goals: to present some new thoughts on closed-end fund pricing and to review much of what is currently known concerning the pricing of closed-end funds. I divide the review into five areas: (1) Issues of the existence of closed-end funds. Under what conditions will closed- end funds come into being as opposed to open-end funds? Is it rational to buy a new issue of a closed-and fund or not? (2) Issues of time series properties of discounts. Assuming that the cross-sectional distribution of discounts and premiums among funds is stable and that a meaningful cross-sectional average can be defined, what factors contribute to time-series variation in the mean closed-end fund discount? (3) Issues of cross-sectional variation in discounts. What factors create variation at any given instant among the observed closed-end fund discounts? (4) Issues of weak and semi-strong form market efficiency. Given that closed- end funds exist and trade, can trading rules be devised using them that earn excess returns and rely solely on publically available information?