Abstract
Market prices of closed-end funds (CEF) deviate from their net asset values (NAV) and it is known as the “CEF puzzle”. We attempt to show from the Turkish experience that CEF discounts/premia predict the corresponding CEF’s future returns, in the light of managerial performance theory. Derivatives are useful tools for fund managers but derivatives facet of the subject matter has not been uncovered so far. Therefore we hypothesize that performance of derivative user CEF are better estimators for discounts/premia than non-users. Our results reveal a significant and positive relation between CEF discounts/premia and future NAV performance. However, we find that this relation seems not to be more explicit for derivative user CEF than non-users.
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