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Risk, Managerial Skill and Closed-End Fund Discounts

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  • Michael Bleaney
  • R. Todd Smith

Abstract

Empirical evidence from the UK market is brought to bear on recent theories of closed-end fund discounts. Market pricing of skill, relative to the fees charged for it, accounts for a significant portion of discount variation, but cannot explain the rarity of index funds or why they trade at a discount. Index funds have lower discount volatility. Discount risk is much more systematic on international than on domestic funds. It is argued that even idiosyncratic risk is priced in closed-end funds, because they are likely to represent a significant proportion of investors’ risky portfolios.

Suggested Citation

  • Michael Bleaney & R. Todd Smith, 2008. "Risk, Managerial Skill and Closed-End Fund Discounts," Discussion Papers 08/10, University of Nottingham, School of Economics.
    • Handle: RePEc:not:notecp:08/10
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    File URL: https://www.nottingham.ac.uk/economics/documents/discussion-papers/08-10.pdf
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    References listed on IDEAS

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