There are fundamental differences between assets held by closed and open-end funds. Past research indicates that closed-end funds are less liquid than open-end funds. For example, a larger percentage of closed-end funds hold less liquid international securities. This paper surveys the existing evidence of the impact of illiquid assets on the prices of open and closed-end funds. Specifically, it surveys existing literature on whether the price discount typically observed on closed-end funds is the expected result given the inescapable costs associated with managing relatively illiquid assets in closed-end funds. This paper synthesizes the various observations into one coherent theme: illiquid assets appear to be a significant source of the differences in the behavior we observe between open and closed-end funds. For a broader audience, this sheds light on valuation issues related to illiquid assets by looking at the case study of closed-end funds.
Michael N. Baur, Omar Benkato and Socorro M. Quintero. "The Influence Of Illiquid Assets On Prices." New York Economic Review. vol. 34, Fall 2003, p. 51-62
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