MOTIVATION AND PERFORMANCE FOLLOWING OPEN-ENDING OF CLOSED-END FUNDS

Aigbe Akhigbe, Jeff Madura and Alan Tucker

This study investigates the motives for open-ending closed-end funds, and performance of closed-end funds following open-ending announcements. We find that the propensity to open end is higher for funds that are larger, have high expense ratios, exhibit high volatility, and whose prices reflect large discounts from net asset value. The total wealth effects of open-ending announcements are stronger for smaller closed-end funds, and in periods when market conditions are relatively weak. There is no observable evidence that the governance-related factors found to predict future open ending are being successfully used to extract higher gains.