Finance and Financial Management Commons^™

Closed-End Funds And Turnover Restrictions, Nusret Cakici, Anthony Tessitore, Nilufer Usmen

Department of Accounting and Finance Faculty Scholarship and Creative Works

Past studies have found that investors can earn higher returns than a benchmark by purchasing shares of closed-end funds with discounts or selling shares with premiums. These studies either ignored the impact of transaction costs or used equally weighted portfolio strategies without controls on turnover or transaction costs. We examined whether constraining the holdings of individual funds and turnover has any bearing on the excess returns earned by closed-end equity funds over a benchmark return. We found that when transaction costs were low, portfolios with frequent rebalancing and loose turnover constraints outperformed the benchmark and other portfolios in the period …