Download or read book Payout Policies and Closed end Fund Discounts written by Zhi Jay Wang and published by . This book was released on 2011 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The adoption of a Managed Distribution Policy or Plan (MDP) by closed-end funds appears effective in dramatically reducing, even eliminating, fund discounts. We investigate two possible explanations: the signaling explanation proposed in the literature, that the MDP serves as a positive signal of future fund performance, and an alternative explanation based on agency costs. Our results indicate that signaling is, at best, only part of the explanation and that the evidence is generally more consistent with the agency cost hypothesis. For funds adopting aggressive payout targets of 10% (median target) and above, discounts tend to disappear, though there is no discernible improvement in NAV performance. Consistent with the agency cost hypothesis, it is often pressure from institutions/large shareholders that leads to the adoption of aggressive payout policies. Moreover, aggressive MDPs are associated with a decrease in fund size and managerial fees. Suggestive of their activist role in MDP adoptions and/or informed trading, institutions - especially ones that are Value oriented - tend to build up their holdings in a fund prior to the adoption of an aggressive MDP, and liquidate their positions once the price rises.

Download or read book Dividend Commitment and Discount Management written by Z. Jay Wang and published by . This book was released on 2006 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that closed-end fund managers can reduce their fund discount by adopting a target distribution policy that commits the fund to distribute at least 10% of its net assets each year. In some cases it is evident that the distribution policy is adopted in response to takeover threats and pressure from investors. We develop a simple model to show that the target distribution policy, by reducing the fund's growth rate of total net assets (TNA), lowers its anticipated exposure to non-fundamental risk (e.g., sentiment risk) - and, thereby, the fund discount. Interestingly, the discount can decrease without any change in the sensitivity of a fund to non-fundamental risk. Empirical evidence confirms that there is a positive and significant relationship between the average TNA growth rate and the level of discount, and that the commitment to a high payout ratio is essential for the target policy to be effective. Moreover, funds with the target policy tend to have higher sensitivity to non-fundamental shocks, suggesting that it is funds with larger potential discounts that have a greater incentive to adopt the target distribution policy.

Download or read book A Model of the Discounts on Closed end Mutual Funds the Quantification Fo Investor Sentiment and the Inability of Arbitrage to Force Closed end Fund Share Prices to Par written by Sean Masaki Flynn and published by . This book was released on 2002 with total page 416 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Closed End Fund Pricing written by Seth Anderson and published by Springer Science & Business Media. This book was released on 2013-04-17 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt: Closed-End Investment Companies (CEICs) have experienced a significant revival of interest, both as investment vehicles and as the subject of academic research, over the past decade. This academic research has focused on the nature of closed-end funds' discounts and premiums and on the share price behavior of these firms. The first book by the authors, "Closed-End Investment Companies: Issues and Answers," addresses closed-end fund academic articles published prior to 1991. This second book addresses those articles that have appeared since that time. Closed-End Fund Pricing: Theories and Evidence is designed for the academic researcher interested in CEICs and the practitioner interested in using CEICs as an investment vehicle. The authors summarize the evolution of CEICs, present the factors thought to cause CEIC shares to trade at different levels from their net asset values, provide a complete survey of the recent academic literature on this topic, and summarize the current state of research on CEICs.

Download or read book Incomplete Information and the Closed end Fund Discount written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We model the closed-end fund discount/premium in a version of Merton's (1978) asset pricing model with incomplete information. In this economy, investors trade only assets which they " know about" . The model generates a closed-end fund discount or premium, depending on risk-aversion parameters. The fund share price reverts to the net asset value on open-ending of the fund. The discount/premium is a result of two economic forces: (1) the fund manager's objective is to maximize expected utility of her fee income rather than the welfare of fund shareholders. Mis-alignment of objectives of the fund manager and shareholders results in discount/premium, and (2) for given risk aversion parameters, diversification benefits to investors determine the size of the discount/premium. Pontiff (1996) documents a positive relation between discounts and unhedgeable risk. This evidence along with other findings leads Pontiff to conclude that discounts appear to be a result of mispricing. Our model provides an alternative interpretation on the positive relation found by Pontiff based on the economic forces depicted above.

Download or read book The Closed end Fund Discount written by Elroy Dimson and published by . This book was released on 2002 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Closed End Fund Discounts in a Rational Agent Economy written by Matthew I. Spiegel and published by . This book was released on 2000 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Nearly any standard financial model concludes that two assets with identical cash flows must sell for the same price. Alas, closed-end mutual fund company share prices seem to violate thisfundamental tenant. Even when one considers several standard frictions, such as taxes and agency costs, classical financial models cannot explain the large persistent discounts foundwithin the data. While the standard financial markets model may not explain the existence of large closed-end fund discounts, this paper shows that a rather close version of it does. In anotherwise frictionless market, if asset supplies vary randomly over time and agents posses finite lives a closed-end mutual fund's stock price may not track its net asset value. Furthermore, the analysis provides a number of conditions under which these discrepancies will lead to the existence of systematic discounts for the mutual fund's shares. In addition, the model provides predictions regarding the correlation between current closed-end fund discounts and current changes in stock prices and future changes in corporate productivity. As the analysis shows the same parameter values that lead to systematic discounts also lead to other fund price characteristics that resemble many of the results found within empirical studies.

Download or read book Closed End Fund Discounts and Expected Investment Performance written by Robert Ferguson and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides empirical support for the theory that closed-end fund discounts reflect expected investment performance. Evidence is presented to explain how equity closed-end fund initial public offerings (IPOs) can sell at a premium when existing funds sell at a discount and why the initial IPO premiums decay after the IPO. Relative premium decay data are presented. Tests on (a) the relation between relative premium changes and investment performance following IPOs, (b) relative premium mean-reversion following management changes, and (c) net redemptions following closed-end fund open-endings for funds trading at pre-open-ending announcement discounts individually support and collectively strongly support the theory.

Download or read book Investing in Closed end Funds written by Albert J. Fredman and published by Prentice Hall. This book was released on 1991 with total page 492 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is the only up-to-date comprehensive book on the subject written for investors as well as stock brokers and financial planners.

Download or read book Essays on Closed end Funds written by Yves Trudel and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Persistence and Predictability of Closed End Fund Discounts written by Burton G. Malkiel and published by . This book was released on 2005 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is well-known that the level of closed-end fund discounts appears to predict the corresponding fund's future returns. We further document that such predictability decays slowly. The popular explanations, including the tax effect, investor sentiment risk, and the funds's dividend yield, do not fully account for the observed predictability. At the same time, discounts are very persistent especially on an aggregate level. Using an AR(1) model for discounts, we demonstrate that such predictability is largely due to persistence in discounts. Our calibration exercise can produce most characteristics of an aggregate equity close-end fund index over the ten year period from 1993 to 2001. A cross-sectional study links discount persistence to rational factors such as dividend yield, unrealized capital gains, and turnover. In addition, we document a second independent source for predicting fund returns from large stock portfolio returns. This suggests that the well-known lead lag relationship between large stocks and small stocks also exists between NAV returns and fund returns. Finally, we find no evidence for quot;excess volatilityquot; on the aggregate level both for conditional and unconditional volatility.

Download or read book The Behavior of Discounts of Closed end Funds Undergoing Open ending written by Lalatendu Misra and published by . This book was released on 2008 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on an extensive sample of U.S. closed-end funds undergoing open-ending conversion, we examine the behavior of discounts prior to the announcement till the date of 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, liquidity, and other characteristics of the fund. We decompose the pre-announcement discount into structural and diosyncratic parts, and report that there is a greater reduction of the idiosyncratcic [sic] part of the discount. We examine the role of distributions to the investors on the size and behavior of discounts subsequent to the open-ending announcement. We find that small amounts of discounts remain at the time of the open-ending and investigate potential explanations for such discounts.

Download or read book The Closed End Fund Discount Puzzle written by Urbi Garay and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic research has focused specifically on the enigmatic behavior of closed-end fund discounts, known in the literature as the closed-end fund discount puzzle. The extant evidence suggests that closed-end funds are issued at a premia with respect to their net asset values but typically trade at discounts thereafter, that the average closed-end fund trades at a significant discount relative to its net asset value, that discounts fluctuate widely over time and also across funds, and that closed-end fund prices converge to their net asset values when they are either liquidated or open-ended. Some of the theories that have been advanced attempting to explain the puzzle are efficient market based explanations and the Investor Sentiment Hypothesis. None of the theories, either individually or collectively, provide a sufficient explanation for the pricing of closed-end funds and, therefore, the enigma continues.

Download or read book A Rational Model of the Closed end Fund Discount written by Jonathan B. Berk and published by . This book was released on 2004 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: The discount on closed-end funds is widely accepted as proof of investor irrationality. We show,however, that a parsimonious rational model can generate a discount that exhibits many of the characteristics observed in practice. The only required features of the model are that managers have (imperfectly observable) ability to generate excess returns; they sign long-term contracts guaranteeing them a fee each year equal to a fixed fraction of assets under management; and they can leave to earn more money elsewhere if they turn out to be good. With these assumptions, time-varying discounts are not an anomaly in a rational world with competitive investors -- they are required.

Download or read book Sentiment Expenses and Arbitrage in Explaining the Discount on Closed End Funds written by Gordon Gemmill and published by . This book was released on 2000 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theory suggests that the persistent discount on closed-end funds is caused by management expenses, while investor sentiment contributes to its volatility. However, empirical studies have tended to support neither of these theories. In this paper we begin by showing how expenses and arbitrage may generate a plausible discount in the UK of about 13%. Cross-sectional tests on 158 equity funds over seven years find that the direct causes of smaller discounts are youth, ease of replication, large size and high dividend yield. Once age of fund is taken into account, the results support the hypothesis that larger expenses are associated with larger discounts. To test for the short-term impact of sentiment on the discount, we use monthly flows from retail investors into open-end funds as a proxy for retail-investor sentiment. Based on cointegration analysis of data by sector, we find a very strong short-term relationship between the closed-end fund discount and retail-investor sentiment. Finally, using data over the last 30 years, we find that discounts widen when the stockmarket is low, at which time small investors hold a much smaller proportion of the funds' shares than normal. Our study supports a rational basis for the existence of a long-run discount, while confirming that both short and medium-term fluctuations are related to investor sentiment.

Download or read book Closed End Funds Exchange Traded Funds and Hedge Funds written by Seth Anderson and published by Springer Science & Business Media. This book was released on 2009-09-18 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Closed-End Funds, Exchange-Traded Funds, and Hedge Funds: Origins, Functions, and Literature is a concise and valuable book that will be of interest to individual investors, financial professionals, and academic researchers, alike. It provides a brief history and institutional discussion of these investment companies and also presents a summary of the research on these funds. Investment practitioners will find the book useful as a reference and as a quick refresher on the current state of knowledge regarding each fund type. Equally important, it provides academic researchers with an accurate institutional framework within which to cast their theoretical models, and a point of departure for expanding the empirical analysis for improving our understanding of these funds. All-in-all, this is a very valuable book; I highly recommend it." (John J. Jackson, Professor of Economics, Auburn University) "Professors Anderson, Born, and Schnusenberg provide a valuable service in this monograph. The practical significance of closed-end funds, exchange-traded funds, and hedge funds has increased dramatically in recent years, but all too many academics and investors know little about them. This text presents a carefully-focused and understandable description of these investment vehicles, highlighting the big, unresolved questions, while also including careful and fair accounts of the state of the literature. Nothing extraneous clutters the presentation, but, more importantly, nothing necessary is left out. Highly recommended." (T. Randolph Beard, Professor of Economics and Public Policy, Auburn University) "This book is both useful as a reference book and as an additive, educational overview of ETFs and hedge funds, as well as CEFs. In today’s tumultuous markets, much reference is made to these subjects without a clear understanding of the vehicles, their structure and their history. This is a very timely publication and should be viewed as an important read. The book contains definitive explanations and also includes an excellent summary of past works in this area. Readable, informative and highly useful as a reference source." (Kathleen A. Wayner, President and CEO, Bowling Portfolio Management)

Download or read book The Information Content of Single Country Closed End Fund Discounts written by Theodosis L. Kallenos and published by . This book was released on 2019 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using monthly data from 1996 to 2018 for the universe of single country closed-end funds, we study the information content of fund discounts/premiums. Unlike previous studies, we find that discounts/premiums forecast both share price (SP) and net asset value (NAV) returns. Additional tests show that the fund discounts/premiums contain information about future macroeconomic factors of their corresponding countries. We also find a strong association between expectations of future macroeconomic conditions and the difference in NAV and SP returns. Our results provide direct evidence for the presence of fundamental information in closed-end country fund discounts/premiums, consistent with international capital market segmentation.