Closed-end Funds Research Articles

Complements or substitutes? The effect of ETFs on other managed funds

We examine the complementary and substitute effects of exchange-traded funds (ETFs) and two other investment vehicles: mutual funds (MFs) and closed-end funds (CEFs). Focusing on the capital flow into investment vehicles, we find a complementary effect between ETFs and MFs, and substitution effect between ETFs and CEFs. The complementarity and substitution effect remains robust when focusing on subsamples with different market conditions and fund management styles. We present further evidence that past inflows of the same investment vehicle are significantly correlated with current inflows. These findings have implications to both investors and regulators in understanding the interdependence of investment vehicles.

Impact of sentimental factors on stock portfolio returns –an empirical analysis

This study aims to introduce an integrated model for understanding the influence of various sentimental factors in conjunction with macroeconomic factors on portfolio returns across ten industry sectors within the US market. These sentimental factors are categorized into market-wide, consumer, and individual stock market factors to assess their impact on industry portfolio returns. Employing the Autoregressive Distributed Lag (ARDL) model, the study evaluates the effects of macroeconomic and sentimental factors on stock market portfolio returns. The findings reveal a negative relationship between short-term interest rates and portfolio returns in specific industry sectors like manufacturing, telecom, and wholesale/retail. The study finds a positive relationship between the Hi-tech sector's risk spread and portfolio returns. Market sentimental factors positively influence portfolio returns of durable, non-durable, utility, and other sectors. Individual sentimental factors negatively impact portfolio returns in hi-tech, utility, durable, energy, and other sectors. The stock market-related individual, sentimental factor of the number of IPOs has a positive impact on portfolio returns in the energy sector and a negative impact on portfolio returns in other sectors. Consumer sentimental factors are significant positive determinants for portfolio returns in durable, energy, telecom, health, and other sectors. Discounts on closed-end funds may provide vital fundamental information regarding lower future earnings for stocks in the durable and energy sectors. The study provides valuable insights for investors to optimize their portfolio strategies in response to macroeconomic and sentimental factors within specific industry sectors.

Tax‐loss selling and the January effect revisited: Evidence from municipal bond closed‐end funds and exchange‐traded funds

AbstractWe revisit the tax‐loss selling hypothesis as an explanation for the January effect. We expand on prior empirical evidence from municipal bond closed‐end funds (CEFs) by extending the sample period by 19 years and adding exchange‐traded funds (ETFs). Our sample covers the introduction and rapid growth of municipal bond ETFs, significant changes to municipal bond market structure, and the modernization of tax‐loss selling practices. The January effect in municipal bond CEFs has become stronger in recent years and is consistent with the tax‐loss hypothesis. The January effect in municipal bond ETFs is smaller and cannot be explained by tax‐loss selling.

Overview of the Nexus Between Investor Sentiment-return Relation and its Antecedents: A Systematic Literature Review

Investor sentiment is the irrational belief of investors leading to over and under-reaction of stock return. Though scholarly works are growing expeditiously in this domain, there is no consensus on the impact of investor sentiment on stock return in different markets. Given the paucity of literature in terms of a summary overview of the nexus between investor sentiment and stock return, this study aims to bridge this gap by re-examining investor sentiment’s impact on stock return in the global context. A total of 108 articles were retrieved from the Scopus database spanning from 2000 to 2022. To review the articles, the study employs Scientific Procedure and Rationales for Systematic Literature Review (SPAR-4-SLR) approach. The review reveals that there exists a significant positive effect during the short run. Furthermore, trading volume, social media, initial public offerings, consumer confidence, and closed-end fund discount are found to be the most frequently used proxies for investor sentiment. The review suggests investors to exercise caution while making short-term investment decisions due to strong sentiment-return relations in the short run. The study findings help policymakers and regulators to play a vital role during abnormal market conditions such as market crashes, financial crises and pandemic situations.

What drives closed‐end fund discounts? Evidence from COVID‐19

AbstractThis paper investigates the impact of the onset of the COVID‐19 pandemic in the United States on closed‐end fund (CEF) discounts. I show that CEF discounts increased after the onset of the COVID‐19 pandemic in the United States, while individual investor sentiment declined. Furthermore, CEFs with higher retail ownership had a larger discount increase, which suggests that individual investor sentiment is a potential contributor to CEF discounts. This finding seems less likely to be driven by rational channels or income‐driven fire sales, as shown by further analysis. Overall, the results shed light on the CEF discount puzzle using a new setting.

A Brief Analysis of The Impact of Investor Sentiment on Stock Prices in The Chinese Stock Market

This article describes the challenges that behavioral finance poses to traditional financial assumptions, from questioning the rationality of human behavior to explaining the classifications and three indicators of investor sentiment in behavioral finance. Furthermore, it confirms the combination of theory and practice by examining turnover ratio as a proxy indicator, the trading volume of closed-end funds, and stock price regression. It demonstrates that investor sentiment significantly influences stock prices. Moreover, it indicates that both investor sentiment and stock prices can mutually affect each other. Among the investor sentiment indicators, turnover ratio has a stronger impact on stock prices, while the trading volume of closed-end funds exhibits certain predictive functionality.

Investor Demand for Leverage: Evidence from Equity Closed-End Funds

Abstract We provide evidence that investors with leverage constraints demand leverage for the sake of leverage. We study the equity closed-end fund (CEF) market and document a strong positive relation between fund leverage and CEF premiums, indicating that investors pay a relative premium for leverage. We perform a quasi-natural experiment and identify leverage as a causal driver of the premium. Leverage changes do not signal improved fund performance. Instead, the only benefit to investors of increased leverage is amplified exposure via greater volatility and risk exposure. We supply external validity by relating our results to the betting-against-beta factor. (JEL G12, G14, G32)

Financial Covenants and Fire Sales in Closed-End Funds

Closed-end funds are thought to have negligible fire sale risk as they have stable funding. However, I show that embedded covenants can generate price pressure in collateralized loan obligation (CLO) funds, even though such funds are closed end. Loans held by constrained CLOs report significantly lower cumulative returns than loans held by unconstrained CLOs. This can be explained by contractual arbitrage, a practice by which CLOs exploit loopholes in the design of covenants to mechanically loosen their covenants and avoid covenant breaches. Covenant breaches are associated with significant pecuniary and nonpecuniary costs, affecting CLO compensation, reputation, and career prospects. I show that when covenants breaches are imminent, managers fire sell distressed loans. Hence, I demonstrate a channel by which closed-end funds can also create fire sale risk, akin to their open-end counterparts. This paper was accepted by Lukas Schmid, finance. Funding: This research was funded by the John and Serena Liew Fellowship Fund at the Fama-Miller Center for Research in Finance at the University of Chicago Booth School of Business, the University of Chicago PhD Program Office, the Stigler Center for the Study of the Economy and State, and the University of Chicago Library. Supplemental Material: The data files and online appendices are available at https://doi.org/10.1287/mnsc.2023.4708 .

Closed-End Fund Discounts and Economic Policy Uncertainty

This paper empirically tests the determinants of closed-end fund (CEF) prices by employing cointegration and error-correction modeling with an advanced ARDL framework. Since CEF shares generally trade at discounts to their net asset value (NAV), we modeled CEF prices, including volatility and economic policy indices along with their NAVs. The present study consists of 31 monthly frequency CEF discount data from January 1999 to April 2018 and economic policy uncertainty (EPU) with ten subindices. This paper finds evidence for cointegration in many of the series and statistically significant coefficients in the short- and long-run estimates of the included subindices.

Closed-End Funds and Discount Control Mechanisms

Closed-End Funds and Discount Control Mechanisms

Investor Sentiment Measurement and Time Series Analysis

Investor sentiment is one of the destabilizing factors in the stock market. In the past, some scholars have proposed models for the measurement of emotions. On this basis, this paper selects 9 factors (closed-end fund discount rate, trading volume of the previous month, market turnover rate of the previous month, number of IPOs, first-day yield of IPOs, number of new investors opened accounts in the last month, Consumers Confidence index, Advance/Decline Line, Business Index of Macro-economic), and constructs the investor sentiment index through principal component analysis. Through statistical analysis of the index, it is found that it satisfies the conditions of a stationary time series, and a related formula is put forward. At the same time, the relationship between index and stock market is discussed.

Performance Evaluation of Mutual Funds in Pakistan

In Pakistan Mutual Funds were introduced in 1962, when the public offering of National Investment (Unit) Trust (NIT) was introduced which is an open-end mutual fund. In 1966 another fund that is Investment Corporation of Pakistan (ICP) was establishment. ICP subsequently offered a series of closed-end mutual funds. Up to early 1990s, twenty six (26) closed-end ICP mutual funds had been floated by Investment Corporation of Pakistan. After considering the option of restructuring the corporation, government decided to wind up ICP in June, 2000. In 2002, the Government started Privatisation of the Investment Corporation of Pakistan. 25 Out of 26 closed-end funds of ICP were split into two lots. There had been a competitive bidding for the privatisation of funds. Management Right of Lot-A comprising 12 funds was acquired by ABAMCO Limited. Out of these 12, the first 9 funds were merged into a single closed-end fund and that was named as ABAMCO Capital Fund, except 4th ICP mutual fund as the certificate holders of the 4th ICP fund had not approved the scheme of arrangement of Amalgamation into ABAMCO capital fund in their extra ordinary general meeting held on December 20, 2003. The fund has therefore been reorganised as a separate closedend trust and named as ABAMCO Growth Fund. Rest of the three funds were merged into another single and named as ABAMCO Stock Market Fund. So far as the Lot-B is concerned, it comprised of 13 ICP funds, for all of these thirteen funds, the Management Right was acquired by PICIC Asset Management Company Limited. All of these thirteen funds were merged into a single closed-end fund which was named as “PICIC Investment Fund”. Later on the 26th fund of ICP (ICP-SEMF) was also acquired by PICIC Asset Management Company Limited.

Tax Reforms, Investor Sentiment and Closed-End Fund Performance

Purpose: Tax reforms have a significant impact on asset prices and shareholders’ wealth. The Tax Cuts and Jobs Act 2017 (TCJA) reduces the tax obligations for both households and businesses. This paper investigates the relationship between closed-end funds performance and investor sentiment induced by tax reforms.
 Methodology: Two proxies of investor sentiment are used to measure the impact on closed-end fund (CEF) performance.
 Results: The results reveal that overall, tax reforms have a positive effect on the closed-end fund valuations. Institutional investors’ sentiment takes a differential view from individual investors on CEF returns. Institutional investors’ sentiment does not show a relationship with fund returns. Medium size CEFs benefit more from tax reforms.
 Unique Contribution to Theory, Policy and Practice: Despite mixed signals, the results suggest that TCJA has influenced the investors’ sentiment resulting in excessive optimism.

Bank affiliation and discounts on closed-end funds

This study investigates whether investors value the bank affiliation of closed-end funds and analyzes whether investors treat funds differently because of their affiliated bank type, commercial or investment, and the size of their affiliated commercial bank, small or big. The analysis of the discounts on closed-end funds traded on Borsa Istanbul reveals that bank-affiliated funds trade at a lower discount than other funds, controlling for fund characteristics and market conditions. It is found that investors are willing to pay a higher price on funds affiliated with commercial banks, especially big ones, than bank-unaffiliated funds. However, discounts on all bank-affiliated funds increased more than discounts on unaffiliated funds during the banking crisis of 2000–2001 in Turkey suggesting that investors are willing to pay a trust premium to invest in funds that are affiliated with banks regardless of their type or size.

Research on Influence from Investor Focus and Investor Sentiment in On-line Social Media upon Stock Market

The present investor sentiment detection relies mainly on the data from security exchange market, such as the discount of closed-end fund, the premium rate on the first day of IPO and other indexes. Although they can directly substitute for investor sentiment, those indexes lack objectivity and timeliness, and thus cannot provide precise evaluation over investor sentiment. With the development of information technology, people gradually engage in recreational activities and make friends via the Internet, and express their own opinions based on the on-line information. In this regard, the influence from investor focus and investor sentiment in the on-line social media upon stock market has been explored from the perspective of big data on line. According to analysis on investor sentiment and dynamics concerning stock market earnings, those two indexes are positively correlated and the stock market fluctuates sharply in a short period of time. Sound countermeasures should be taken to enhance the safeguard against such fluctuations.

Performance Persistence. An Examination of US Closed-End Funds

Performance Persistence. An Examination of US Closed-End Funds

ESG Commitment and the Value of 'Walking the Talk': Evidence from Closed-End Funds

ESG Commitment and the Value of 'Walking the Talk': Evidence from Closed-End Funds

Managerial Performance Persistence. a Comparative Study of US Closed-End Funds

Managerial Performance Persistence. a Comparative Study of US Closed-End Funds

Performance Persistence of US Closed-End Funds.

Performance Persistence of US Closed-End Funds.

Performance Persistence. Research Analysis of US Closed-End Funds.

Performance Persistence. Research Analysis of US Closed-End Funds.