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Exchange-Traded Fund Introductions and Closed-End Fund Discounts and Volume

  • Scott W. Barnhart
  • Stuart Rosenstein
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    Exchange-traded funds (ETFs), like closed-end funds (CEFs), are managed portfolios traded like individual stocks. We hypothesize that the introduction of an ETF in an asset class similar to an existing CEF results in a substitution effect that reduces the value of the CEF's shares relative to that of its underlying assets. Our event studies show that upon the introduction of a similar ETF, CEF discounts widen significantly and relative volume declines significantly. Single-equation and systems estimation models show that the widening in discounts and reduction in volume are related to returns-based measures of the substitutability of ETFs for CEFs. Copyright (c) 2010, The Eastern Finance Association.

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    Article provided by Eastern Finance Association in its journal Financial Review.

    Volume (Year): 45 (2010)
    Issue (Month): 4 (November)
    Pages: 973-994

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    Handle: RePEc:bla:finrev:v:45:y:2010:i:4:p:973-994
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