Closed-end funds and the financial crisis

Abstract

We compare the impact of the recent financial crisis on open-end and closed-end mutual funds related to the difference in their organisation structure: presence/absence of redemption pressure. Our primary findings are that the structural advantage of closed-end funds, i.e. absence of redemption pressure, is valuable and that such value is dynamic depending on market conditions. The structural advantage is stronger in the more volatile sectors of the market, i.e. equity sectors, and is strongest at the deepest of the crisis. Specifically, open-end bond funds outperformed their closed-end counterparts in 2008, while in sharp contrast, open-end equity funds underperformed closed-end equity funds in 2008.