Closed-End Fund Shares' Abnormal Returns and the Information Content of Discounts and Premiums



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    • Graduate School of Business Administration, University of Washington. I would like to thank Ron Lease, Michael Rozeff, Terry Shevlin, Daniel Walz, and participants of finance workshops at the State University of New York at Buffalo and Tulane University for several helpful comments. All errors are, of course, the author's sole responsibility.


Closed-end funds' discounts contain information in the sense that they can be used to construct portfolios that earn returns exceeding those predicted by the two-factor capital asset pricing model. The precise nature of the information contained in a discount is not clear, however. This paper provides evidence that the information contained in a discount is an incomplete prediction of the fund's likelihood of being open-ended profitably.