Closed-End Funds Issues and Studies
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This chapter provides brief reviews of the numerous articles that investigate various aspects of closed-end fund (CEF) pricing. Much of the research focuses on the causes of the existence and persistence of fund share price discounts to net asset value. These works span the past half century and have yielded many results including the following: (1) market frictions, such as expenses and capital gains effects, only partially explain the existence of discounts; (2) country funds which target countries having international investment restrictions tend to sell at premiums to net asset value; (3) investors who purchase most fund IPOs usually experience poor initial returns; (4) large discounts tend to be associated with periods of market pessimism, and these discounts narrow during periods of euphoria; and (5) the mean reverting behavior of discounts appears to be responsible for the profitable discount-based trading strategies reported by some authors.