Closed-End Funds. Market Description and the Behavioral Explanation of the Discount: A Review

Abstract

Of the Investment Funds world market that reached US dollars 21,76 trillion at the end of 2006, Closed-End funds cover approximately 4%. The market is captured by the US and EU Investment Funds that cover almost 95% of total assets. Existing since 1868, Closed-End Funds offer most of the advantages of the collective investments, and one threat that can prove to be an important opportunity: The Discount to the Net Asset Value that they usually trade. The discount threat, can lead to superior total returns and this is one of the reasons why this small collective investment market still exists. We focus on the behavioral explanation of the discount puzzle, as it explains also the existence of periods or funds that are sold or trade at prices higher to their NAV.

JEL Classifications: G23, L89