Investor Tax-Trading Opportunities and Discounts on Closed-End Mutual Funds,

Authors

  • Chang-Soo Kim St. John’s University

DOI:

https://doi.org/10.1016/1057-0810(95)90034-9

Abstract

Discounts on closed-end mutual funds are a puzzle to financial economists because arbitrage activities should eliminate discounts in a perfect capital market. In this paper I develop a model that explains discounts, using Merton’s option pricing theorem. By holding shares of a closed-end mutual fund, investors lose valuable tax-trading opportunities asso- ciated with the constituent securities of the closed-end mutual fund’s portfolio. However, investors can take advantage of all tax-trading opportunities by directly holding the closed- end mutual fund’s portfolio. I also show that both variances of the individual securities and correlations among securities in the portfolio are important factors in determining the magnitude of discounts. The Journal of Financial Research, Spring 1994, XVII( 1): 65-75. (Reprinted with permission of The Journul of Financial Research.)

Published

1995-06-30

How to Cite

Kim, C.-S. (1995). Investor Tax-Trading Opportunities and Discounts on Closed-End Mutual Funds,. Financial Services Review, 4(1), 66. https://doi.org/10.1016/1057-0810(95)90034-9

Issue

Vol. 4 No. 1 (1995): Financial Services Review

Section

Abstracts of Articles on Individual Financial Management

License

Copyright (c) 1995 JAI Press Inc.

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.