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Activist arbitrage: A study of open-ending attempts of closed-end funds

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Author Info

  • Bradley, Michael
  • Brav, Alon
  • Goldstein, Itay
  • Jiang, Wei

Abstract

This paper documents frequent attempts by activist arbitrageurs to open-end discounted closed-end funds, particularly after the 1992 proxy reform which reduced the costs of communication among shareholders. Open-ending attempts have a substantial effect on discounts, reducing them, on average, to half of their original level. The size of the discount is a major determinant of whether a fund gets attacked. Other important factors include the costs of communication among shareholders and the governance structure of the targeted fund. Our study contributes to the understanding of the actions undertaken by arbitrageurs in financial markets beyond just pure trading.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 95 (2010)
Issue (Month): 1 (January)
Pages: 1-19

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Handle: RePEc:eee:jfinec:v:95:y:2010:i:1:p:1-19

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Activist arbitrage Closed-end funds Communication Feedback effects Proxy reform;

References

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Citations

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Cited by:
  1. Mitchell, Mark & Pulvino, Todd, 2012. "Arbitrage crashes and the speed of capital," Journal of Financial Economics, Elsevier, vol. 104(3), pages 469-490.
  2. Kim, Doseong & Kim, Yura & Song, Kyojik Roy, 2013. "Payout policies on U.S. closed-end funds," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 345-356.
  3. Jacob Oded & Yu Wang, 2010. "On the different styles of large shareholders’ activism," Economics of Governance, Springer, vol. 11(3), pages 229-267, June.
  4. Alex Edmans, 2013. "Blockholders and Corporate Governance," NBER Working Papers 19573, National Bureau of Economic Research, Inc.
  5. Jay Wang, Z. & Nanda, Vikram, 2011. "Payout policies and closed-end fund discounts: Signaling, agency costs, and the role of institutional investors," Journal of Financial Intermediation, Elsevier, vol. 20(4), pages 589-619, October.
  6. Nicole Boyson & Robert Mooradian, 2011. "Corporate governance and hedge fund activism," Review of Derivatives Research, Springer, vol. 14(2), pages 169-204, July.
  7. Wu, Youchang & Wermers, Russ & Zechner, Josef, 2012. "Governance and shareholder value in delegated portfolio management: The case of closed-end funds," CFR Working Papers 12-11, University of Cologne, Centre for Financial Research (CFR).
  8. Yongchun Ju & Linying Zhao, 2014. "Directors’ Ownership and Closed-End Fund Discounts," Journal of Financial Services Research, Springer, vol. 45(2), pages 241-269, April.
  9. Anokhin, Sergey & Wincent, Joakim, 2014. "Technological arbitrage opportunities and interindustry differences in entry rates," Journal of Business Venturing, Elsevier, vol. 29(3), pages 437-452.
  10. Chen, Qi & Goldstein, Itay & Jiang, Wei, 2010. "Payoff complementarities and financial fragility: Evidence from mutual fund outflows," Journal of Financial Economics, Elsevier, vol. 97(2), pages 239-262, August.
  11. Renneboog, Luc & Szilagyi, Peter G., 2011. "The role of shareholder proposals in corporate governance," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 167-188, February.

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