Closed-End Funds and Turnover Restrictions

Nusret Cakici, Anthony Tessitore, Nilufer Usmen

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

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 we studied. We found, in contrast, that when transaction costs were moderate to high, portfolios with less-frequent rebalancing and tight turnover constraints outperformed the benchmark and other portfolios. The implication for the portfolio manager is that excess returns may be achieved in a variety of trading-cost environments with the proper mix of policy variables.

Original languageEnglish
Pages (from-to)74-81
Number of pages8
JournalFinancial Analysts Journal
Volume58
Issue number3
DOIs
StatePublished - 1 Jan 2002

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Closed-end funds
Transaction costs
Turnover
Benchmark
Excess returns
Rebalancing
Turnover costs
Portfolio strategy
Investors
Equity
Discount
Trading costs
Purchasing
Premium
Managers

Cite this

Cakici, Nusret ; Tessitore, Anthony ; Usmen, Nilufer. / Closed-End Funds and Turnover Restrictions. In: Financial Analysts Journal. 2002 ; Vol. 58, No. 3. pp. 74-81.
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Cakici, N, Tessitore, A & Usmen, N 2002, 'Closed-End Funds and Turnover Restrictions', Financial Analysts Journal, vol. 58, no. 3, pp. 74-81. https://doi.org/10.2469/faj.v58.n3.2539

Closed-End Funds and Turnover Restrictions. / Cakici, Nusret; Tessitore, Anthony; Usmen, Nilufer.

In: Financial Analysts Journal, Vol. 58, No. 3, 01.01.2002, p. 74-81.

Research output: Contribution to journalArticleResearchpeer-review

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