Fund IPOs Research Articles

Closed-End Fund IPOs: Sold Not Bought

Closed-end fund IPOs are priced above their net asset value due to the sales load paid to the underwriters. Within five months of the IPO, they start trading at a discount. Six months post-IPO, the average raw return is -4.75%, underperforming seasoned funds by 8.52%. An agency hypothesis is introduced to explain the negative raw and abnormal returns. I posit that full service brokers with access to retail investors create demand for CEF IPOs when the time-varying reputational cost is low. Intensive price support delays and obfuscates the subsequent price decline. In other words, CEF IPOs are sold, not bought.

An empirical analysis of Mexican and US closed-end mutual fund IPOs

We examine 135 Mexican closed-end fund IPOs and 370 Mexican non-fund IPOs that issued between 1994 and 2003 along with 217 contemporaneous US fund IPOs and document three primary results. First, we find that Mexican IPOs in the aggregate experience no significant underpricing, unlike their US IPO counterparts. Both Mexican and US IPOs experience significantly negative long-run performance. Second, Mexican closed-end fund IPOs experience positive long-run performance, significantly better than Mexican non-fund IPOs which experience negative long-run performance. Unlike Mexican fund IPOs, US fund IPOs experience negative long-run performance. Third, we find that both Mexican and US debt-backed closed-end fund IPOs significantly outperform equity-backed closed-end IPOs. In Mexico, debt-backed funds experience positive abnormal returns, compared to negative abnormal returns for Mexican equity-backed funds, US debt-backed funds, and US equity-backed funds.

Country Funds and Investor Sentiment: U.K. and U.S. Evidence

This article provides support for the notion of investor sentiment using the population of U.K.- and U.S.-traded closed-end country funds. Despite the different shareholder profiles, we find marked similarities in the timing of U.K./U.S. country fund IPOs and in the pricing structure of U.K.- and U.S.-traded funds. Using U.K. data, we document strong evidence of a robust relation between individual-investor money flowing into U.K. mutual funds and a narrowing in the discount of U.K.-traded country funds. There is no evidence of a link between the level of the discount and institutional investor activity.

Closed-End Fund IPOs: Caveat Emptor

Closed-End Fund IPOs: Caveat Emptor