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A Rational Model of the Closed-End Fund Discount / Jonathan Berk, Richard Stanton.
- Format:
- Book
- Author/Creator:
- Berk, Jonathan.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w10412.
- NBER working paper series no. w10412
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2004.
- Summary:
- The discount on closed-end funds is widely accepted as proof of investor irrationality. We show,however, that a parsimonious rational model can generate a discount that exhibits many of the characteristics observed in practice. The only required features of the model are that managers have (imperfectly observable) ability to generate excess returns; they sign long-term contracts guaranteeing them a fee each year equal to a fixed fraction of assets under management; and they can leave to earn more money elsewhere if they turn out to be good. With these assumptions, time-varying discounts are not an anomaly in a rational world with competitive investors -- they are required.
- Notes:
- Print version record
- April 2004.
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