Managerial Performance and the Cross-Sectional Pricing of Closed-End Funds

Abstract

This paper finds that discounts and premiums of closed-end funds reflect the market’s assessment of anticipated managerial performance. Using single and multiple benchmarks, we present evidence that there is a significant and positive relation between stock fund premiums and future net asset value performance over the following year. The relation is not caused by the anticipation of future expenses. The conclusions are the same if a measure of noise-trading (or the “investor sentiment index”) is subtracted from a fund’s discount/premium. We also find that bond closed-end funds show no such relation between premium and net asset value performance.