Abstract
Risk-neutral valuation is used to value a portfolio and decompose it into the components accruing to its stakeholders. The analysis incorporates managers’ expected performance and contract renewal issues. A managed portfolio’s economic value is shown to differ from its net asset value. A better foundation for computing fair closed-end fund discounts and a partial explanation of equilibrium in the markets for open and closed-end mutual funds are provided. Tests on the behavior of net redemptions following closed-end fund open-endings and the relation between premiums and investment performance around IPOs strongly support the paper’s theory.
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