Determinants of Cross-Sectional Difference of Closed-End Fund Discounts (Manuscripts‪)‬

ABSTRACT This study investigates empirically the determinants of cross-sectional variations in the level of closed-end fund discounts. Three types of closed-end funds, government bond funds, corporate bond funds and domestic equity funds, were investigated separately. Contrary to the past findings and popular belief, the current sample shows that bond funds were selling on average at significant discounts over the two periods. The results indicate that different types of funds have different determinants: For government bond funds and domestic equity funds, the determinants consist of both accounting (asset book value) data and market data; for corporate bond funds, the determinants consist of accounting data only. Two accounting variables, total net asset value and net asset value total year-to-date return were significant in all three models. The highly significant t-statistics for variables in the regression equations, the high explanatory power of the models as measured by R-squares and adjusted RA-squares, and the robustness of the relationship as indicated by the inter-period results unambiguously show the rational investor behavior consistent with market efficiency.