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The behavior of discounts of closed-end funds undergoing open-ending

Author

Listed:
  • Karan Bhanot

    (University of Texas at San Antonio)

  • Valeria Martinez

    (Fairfield University)

  • Lalatendu Misra

    (University of Texas at San Antonio)

  • Jullavut Kittiakaraskun

    (University of North Carolina, Pembroke)

  • Sinan Yildirim

    (University of Texas at San Antonio)

Abstract

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 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.

Suggested Citation

  • Karan Bhanot & Valeria Martinez & Lalatendu Misra & Jullavut Kittiakaraskun & Sinan Yildirim, 2008. "The behavior of discounts of closed-end funds undergoing open-ending," Working Papers 0092, College of Business, University of Texas at San Antonio.
    • Handle: RePEc:tsa:wpaper:0094fin
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    closed-end funds; discount;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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