INVESTMENT TEXTS have long regarded closed-end mutual funds as curious phenomena worthy of a paragraph or two specifying that these firms hold as assets the securities of other firms (as do open-end funds) but are unusual in that the closed-end companies' equities are themselves traded in securities markets, and are not subject to continuous issue-redemption (as are those of open-end funds). The texts then continue bemusedly to relate that it is common for the market price of closed-ends to differ considerably from the funds' net asset value (again, definitionally in contrast to open-ends' shares which use net asset value as the basis for pricing). Occasionally efforts are made toward explaining the divergence of share price and net asset value per share but these are offhand at best (they will be examined below) and the authors quickly move to discussions of the more popular open-end funds.' It is not surprising that normative investment texts show little interest in closed-end funds; the companies are few and relatively small compared to the open-ends. What is surprising is that academic finance has seen nothing of interest in closed-end funds since they present our closest approach to a controlled experiment in the market
The Journal of Finance – Wiley
Published: May 1, 1973
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