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The Influence Of Illiquid Assets On Prices

Listed author(s):
  • Michael N. Baur
  • Omar Benkato
  • Socorro M. Quintero
Registered author(s):

    There are fundamental differences between assets held by closed and open-end funds. Past research indicates that closed-end funds are less liquid than open-end funds. For example, a larger percentage of closed-end funds hold less liquid international securities. This paper surveys the existing evidence of the impact of illiquid assets on the prices of open and closed-end funds. Specifically, it surveys existing literature on whether the price discount typically observed on closed-end funds is the expected result given the inescapable costs associated with managing relatively illiquid assets in closed-end funds. This paper synthesizes the various observations into one coherent theme: illiquid assets appear to be a significant source of the differences in the behavior we observe between open and closed-end funds. For a broader audience, this sheds light on valuation issues related to illiquid assets by looking at the case study of closed-end funds.

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    Article provided by New York State Economics Association (NYSEA) in its journal New York Economic Review.

    Volume (Year): 34 (2003)
    Issue (Month): 1 ()
    Pages: 51-62

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    Handle: RePEc:nye:nyervw:v:34:y:2003:i:1:p:51-62
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    1. Chay, J. B. & Trzcinka, Charles A., 1999. "Managerial performance and the cross-sectional pricing of closed-end funds," Journal of Financial Economics, Elsevier, vol. 52(3), pages 379-408, June.
    2. Brauer, Greggory A., 1984. "`Open-ending' closed-end funds," Journal of Financial Economics, Elsevier, vol. 13(4), pages 491-507, December.
    3. Kumar, Raman & Noronha, Gregory M, 1992. "A Re-examination of the Relationship between Closed-End Fund Discounts and Expenses," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 15(2), pages 139-147, Summer.
    4. Patro, Dilip Kumar, 2001. "Measuring performance of international closed-end funds," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1741-1767, September.
    5. Akhigbe, Aigbe & Madura, Jeff, 2001. "Motivation and Performance of Seasoned Offerings by Closed-End Funds," The Financial Review, Eastern Finance Association, vol. 36(3), pages 101-122, August.
    6. Porter, Gary E & Roenfeldt, Rodney L & Sicherman, Neil W, 1999. "The Value of Open Market Repurchases of Closed-End Fund Shares," The Journal of Business, University of Chicago Press, vol. 72(2), pages 257-276, April.
    7. Malhotra, D K & McLeod, Robert W, 2000. "Closed-End Fund Expenses and Investment Selection," The Financial Review, Eastern Finance Association, vol. 35(1), pages 85-104, February.
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