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Termination of closed end funds and behavior of their discounts

Author

Listed:
  • Lalatendu Misra

    (The University of Texas at San Antonio)

  • Jullavut Kittiakarasakun

    (The University of Texas at San Antonio)

  • Sinan Yildirim

    (Texas Wesleyan University)

Abstract

Based on an extensive sample of U.S. closed-end funds undergoing open-ending, we examine the behavior of discounts prior to the announcement till 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, and other hypothesized characteristics of the fund and investor behavior. The role of investor sentiments as an explanator of discounts is weaker after announcement. We decompose the pre-announcement discount into structural and idiosyncratic parts, and report that there is a greater reduction of the idiosyncratcic part of the discount at announcement. Time series behavior of discounts lends support to investor confidence. We find that small amounts of discounts remain at the time of the open-ending.

Suggested Citation

  • Lalatendu Misra & Jullavut Kittiakarasakun & Sinan Yildirim, 2009. "Termination of closed end funds and behavior of their discounts," Working Papers 0093, College of Business, University of Texas at San Antonio.
    • Handle: RePEc:tsa:wpaper:00121fin
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    More about this item

    Keywords

    Closed-end funds; open-ending; discounts; investor sentiment.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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