The purpose of this study is to extend the research on mutual fund performance persistence to closed-end funds. Because closed-end funds trade at market prices different from net asset value (NA V) they are used to test both the performance persistence of their NAV and market price returns. While research has assessed the performance persistence of open-end funds, it has not assessed the performance persistence of closed-end funds. Yet, the unique characteristics of closed-end funds allow stronger arguments for their persistence than the arguments previously submitted for open-end funds. The characteristics that can potentially cause closed-end fund return persistence to be different from open-end fund return persistence include investor sentiment, restrictions on liquidity of underlying assets and cash holdings, and performance pressure on fund managers. This study also investigates the NAV and market price return persistence of international closed-end funds. This group of funds is of particular interest because investor sentiment determines a large portion of the market price return. In addition, as some international markets are less efficient due to restricted flow of information, fund managers may have an advantage in portfolio selection. Finally, this study examines cross- sectionally whether the persistence measure is related to the fund characteristics size, goal, management fees, turnover, fund family, fund experience, and the stock exchange a fund is traded on. The results show evidence for NA V and market price performance persistence, which is stronger for past winning than losing funds. NAV return persistence is less for foreign than domestic funds, possibly due to exchange rate fluctuations. However, market price return persistence is greater for foreign than domestic funds, which may indicate that price pressure is affecting foreign funds more than domestic funds. Funds with lower expense ratios, funds that are not members in a fund family, and funds traded on the NYSE show more persistence of strong NA V and market price performance. The results imply that investors should benefit from investing in past winning funds. This is particularly true for foreign funds, funds with lower expense ratios, funds that are not members of a fund family, and funds traded on the NYSE.
Florida Atlantic University
Bers, M.K. (1998). The performance persistence of closed-end funds. A dissertation submitted to the faculty of the College of Business in partial fulfillment of the Requirement for the Degree of Doctor of Philosophy. Florida Atlantic University.
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