A RE‐EXAMINATION OF THE RELATIONSHIP BETWEEN CLOSED‐END FUND DISCOUNTS AND EXPENSES

Abstract

Abstract In this paper the role of expenses in explaining closed‐end fund discounts is re‐examined. A present value model is developed to illustrate the relationship between expenses and discounts. Earlier studies find that discounts are not related to management fees. In this paper, using a larger sample over a longer and different period and a better specification of the expense variable consistent with the model developed, discounts are found to be significantly related to expenses. The relationship between expenses and discounts holds in the presence of other control variables.