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Why Do Closed-End Bond Funds Exist? An Additional Explanation for the Growth in Domestic Closed-End Bond Funds

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  • Elton, Edwin J.
  • Gruber, Martin J.
  • Blake, Christopher R.
  • Shachar, Or

Abstract

This paper provides a new explanation for why closed-end bond funds coexist along with otherwise identical open-end bond funds. Closed-end bond funds offer investors the opportunity to leverage their fixed income investment at very low borrowing rates and are attractive to investors for this reason. We find that differences in leverage are reflected in the discount on closed-end bond funds in a manner consistent with the advantage of leverage.

Suggested Citation

  • Elton, Edwin J. & Gruber, Martin J. & Blake, Christopher R. & Shachar, Or, 2013. "Why Do Closed-End Bond Funds Exist? An Additional Explanation for the Growth in Domestic Closed-End Bond Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(2), pages 405-425, April.
  • Handle: RePEc:cup:jfinqa:v:48:y:2013:i:02:p:405-425_00
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    Cited by:

    1. Fletcher, Jonathan, 2018. "An empirical examination of the diversification benefits of U.K. international equity closed-end funds," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 23-34.
    2. Piccotti, Louis R., 2020. "Strategic trade when securitized portfolio values are unknown," Journal of Banking & Finance, Elsevier, vol. 115(C).
    3. Dilip Patro & Louis R. Piccotti & Yangru Wu, 2017. "Exploiting Closed-End Fund Discounts: A Systematic Examination Of Alphas," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 40(2), pages 223-248, June.
    4. Youchang Wu & Russ Wermers & Josef Zechner, 2016. "Managerial Rents vs. Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds," Review of Financial Studies, Society for Financial Studies, vol. 29(12), pages 3428-3470.
    5. Souther, Matthew E., 2016. "The effects of takeover defenses: Evidence from closed-end funds," Journal of Financial Economics, Elsevier, vol. 119(2), pages 420-440.
    6. Kryzanowski, Lawrence & Mohebshahedin, Mahmood, 2016. "Board governance, monetary interest, and closed-end fund performance," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 196-217.
    7. Binghui Wu & Tingting Duan & Jianmin He, 2018. "Dynamics Evolution of Trading Strategies of Investors in Financial Market," Computational Economics, Springer;Society for Computational Economics, vol. 51(4), pages 743-760, April.
    8. Bredin, Don & Cuthbertson, Keith & Nitzsche, Dirk & Thomas, Dylan C., 2014. "Performance and performance persistence of UK closed-end equity funds," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 189-199.

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