A Rational Model Of The Closed End Fund Discount
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Author | : Jonathan B. Berk |
Publisher | : |
Total Pages | : 28 |
Release | : 2004 |
Genre | : Capitalists and financiers |
ISBN | : |
Download A Rational Model of the Closed-end Fund Discount Book in PDF, Epub and Kindle
The discount on closed-end funds is widely accepted as proof of investor irrationality. We show,however, that a parsimonious rational model can generate a discount that exhibits many of the characteristics observed in practice. The only required features of the model are that managers have (imperfectly observable) ability to generate excess returns; they sign long-term contracts guaranteeing them a fee each year equal to a fixed fraction of assets under management; and they can leave to earn more money elsewhere if they turn out to be good. With these assumptions, time-varying discounts are not an anomaly in a rational world with competitive investors -- they are required.
Author | : Matthew I. Spiegel |
Publisher | : |
Total Pages | : 41 |
Release | : 2000 |
Genre | : |
ISBN | : |
Download Closed-End Fund Discounts in a Rational Agent Economy Book in PDF, Epub and Kindle
Nearly any standard financial model concludes that two assets with identical cash flows must sell for the same price. Alas, closed-end mutual fund company share prices seem to violate thisfundamental tenant. Even when one considers several standard frictions, such as taxes and agency costs, classical financial models cannot explain the large persistent discounts foundwithin the data. While the standard financial markets model may not explain the existence of large closed-end fund discounts, this paper shows that a rather close version of it does. In anotherwise frictionless market, if asset supplies vary randomly over time and agents posses finite lives a closed-end mutual fund's stock price may not track its net asset value. Furthermore, the analysis provides a number of conditions under which these discrepancies will lead to the existence of systematic discounts for the mutual fund's shares. In addition, the model provides predictions regarding the correlation between current closed-end fund discounts and current changes in stock prices and future changes in corporate productivity. As the analysis shows the same parameter values that lead to systematic discounts also lead to other fund price characteristics that resemble many of the results found within empirical studies.
Author | : Seth Anderson |
Publisher | : Springer Science & Business Media |
Total Pages | : 106 |
Release | : 2013-04-17 |
Genre | : Business & Economics |
ISBN | : 1475736339 |
Download Closed-End Fund Pricing Book in PDF, Epub and Kindle
Closed-End Investment Companies (CEICs) have experienced a significant revival of interest, both as investment vehicles and as the subject of academic research, over the past decade. This academic research has focused on the nature of closed-end funds' discounts and premiums and on the share price behavior of these firms. The first book by the authors, "Closed-End Investment Companies: Issues and Answers," addresses closed-end fund academic articles published prior to 1991. This second book addresses those articles that have appeared since that time. Closed-End Fund Pricing: Theories and Evidence is designed for the academic researcher interested in CEICs and the practitioner interested in using CEICs as an investment vehicle. The authors summarize the evolution of CEICs, present the factors thought to cause CEIC shares to trade at different levels from their net asset values, provide a complete survey of the recent academic literature on this topic, and summarize the current state of research on CEICs.
Author | : Elroy Dimson |
Publisher | : |
Total Pages | : 84 |
Release | : 2002 |
Genre | : Business & Economics |
ISBN | : |
Download The Closed-end Fund Discount Book in PDF, Epub and Kindle
Author | : Robert A. Jarrow |
Publisher | : |
Total Pages | : 15 |
Release | : 2017 |
Genre | : |
ISBN | : |
Download A Rational Asset Pricing Model for Premiums and Discounts on Closed-End Funds Book in PDF, Epub and Kindle
This paper provides a new explanation for closed-end fund (CEF) discounts and premiums using the local martingale theory of asset price bubbles. This is a rational asset pricing model that is shown to be consistent with the existing empirical evidence on CEF discounts/premiums. Additional testable implications of the model are derived which await subsequent research for their resolution. This bubble theory also applies equally well to understanding discounts and premiums on exchange traded funds (ETFs).
Author | : Sean Masaki Flynn |
Publisher | : |
Total Pages | : 416 |
Release | : 2002 |
Genre | : |
ISBN | : |
Download A Model of the Discounts on Closed-end Mutual Funds, the Quantification Fo Investor Sentiment, and the Inability of Arbitrage to Force Closed-end Fund Share Prices to Par Book in PDF, Epub and Kindle
Author | : Michael S. Rozeff |
Publisher | : |
Total Pages | : 20 |
Release | : 2007 |
Genre | : |
ISBN | : |
Download Closed-End Fund Discounts and Premiums Book in PDF, Epub and Kindle
This paper reviews and analyzes five areas relating to closed-end funds. (1) Issues relating to the existence of closed-funds and why rational investors subscribe to new issues of them. A detailed set of model assumptions is examined in order to understand the basis for closed-end funds coming into existence. (2) The time-series properties of discounts. (3) The cross-sectional variation in closed-end fund discounts. (4) Issues of weak and semi-strong form efficiency. (5) Issues relating to the open-ending of closed-end funds.
Author | : Thomas J. Herzfeld |
Publisher | : McGraw-Hill Companies |
Total Pages | : 232 |
Release | : 1980 |
Genre | : Business & Economics |
ISBN | : |
Download The Investor's Guide to Closed-end Funds Book in PDF, Epub and Kindle
Author | : B.Philipp Kellerhals |
Publisher | : Springer Science & Business Media |
Total Pages | : 247 |
Release | : 2012-11-02 |
Genre | : Business & Economics |
ISBN | : 3540246975 |
Download Asset Pricing Book in PDF, Epub and Kindle
Covers applications to risky assets traded on the markets for funds, fixed-income products and electricity derivatives. Integrates the latest research and includes a new chapter on financial modeling.
Author | : Martin Cherkes |
Publisher | : |
Total Pages | : 22 |
Release | : 2011 |
Genre | : |
ISBN | : |
Download The Closed-End Funds Book in PDF, Epub and Kindle
This paper offers a new explanation to the closed-end funds' puzzles. It is driven by two observations: the fact the closed-end fund is a public company with a guaranteed, long-term annual compensation for Fund's entrenched management; and the assumption (acceptable within classical rational-and-efficient-markets paradigm) that management adds value to assets-under-their-management. As a result, the value of the closed end fund's shares is an algebraic sum of assets-under-management plus the [capitalized] value-added by the management minus the [capitalized] value of the costs-of-management. This approach is rich enough to explain several of perceived quot;puzzlesquot;, such as the persistence of discounts, relationship between a Fund's discount and its dividend policy, the zero correlation between discounts and interest rates, and the excess volatility of Fund's share price. It suggests a positive theory of the closed-end fund as an efficiency-driven organizational form of fund management.The paper's arguments are supported by our preliminary empirical study. The approach provides a number of empirically testable hypotheses.