Editing Closed-end fund (section)

==Discounts and premiums==
Closed-end fund shares often trade at prices that deviate from the market values of the securities in their portfolios. Such funds have a long history of trading at a discount to market value, although they may also trade at a premium.<ref>{{cite news |last1=Buttonwood |title=Boaz v BlackRock: Whoever wins, closed-end funds lose |url=https://www.economist.com/finance-and-economics/2024/05/23/boaz-v-blackrock-whoever-wins-closed-end-funds-lose |access-date=31 May 2024 |publisher=The Economist Newspaper Ltd. |date=May 25, 2024}}</ref><ref name="lee">{{cite journal |last1=Lee, Charles M.; Shliefer, Andre; [[Richard Thaler|Thaler, Richard H]]. |title=Investor Sentiment and the Closed-End Fund Puzzle |journal=The Journal of Finance |date=March 1991 |volume=XLVI |issue=1 |pages=75–109}}</ref><ref>{{cite web|url=http://www.economics.harvard.edu/faculty/shleifer/files/InvestorSentiment.pdf |title=Investor Sentiment and the Closed-End Fund Puzzle |access-date=2010-12-01 |url-status=dead |archive-url=https://web.archive.org/web/20100706045451/http://www.economics.harvard.edu/faculty/shleifer/files/InvestorSentiment.pdf |archive-date=2010-07-06 }} accessed on 31/10/11</ref><ref>{{cite news |last1=Forsythe |first1=Randall |title=Play the Closed-End Fund Game with the Pros |url=https://www.barrons.com/articles/play-the-closed-end-fund-game-with-the-pros-51618399802 |access-date=7 May 2023 |agency=Barron's}}</ref> Reasons for the tendency towards discount pricing are thought to include:
* investor perception that the fund's management fees are too high, or that future performance will be disappointing;<ref>{{cite journal |title=Lee et al p. 78}}</ref>
* stockbrokers' reluctance to recommend closed-end funds to customers because other investments such as mutual funds generate higher sales commissions;<ref>{{cite book |last1=Herzfeld |first1=Thomas J. |title=Herzfeld's Guide to Closed-End Funds |date=1993 |publisher=McGraw-Hill |location=New York |isbn=0-07-028435-0 |page=8}}</ref>
* concerns that closed-end fund net asset values overstate the true market value of the underlying investments, for example because the fund holds illiquid securities (such as private placements or restricted stock), or because net asset value does not reflect capital gains taxes that will be incurred when the fund sells the underlying investments;<ref name="lee"/>{{rp|78–79}}<ref name="Herzfeld p. 8-17">{{cite book |title=Herzfeld p. 8-17}}</ref>
* the practice of deducting fund expenses before dividends are distributed to investors, which makes the fund's yield lower than would be obtained by buying the identical stocks in the open market;<ref name="Herzfeld p. 8-17"/>
* the belief that closed-end funds tend to attract less astute individual investors, rather than professional or institutional investors,<ref>{{cite news |last1=Forsyth |first1=Randall |title=Play the Closed-End Fund Game with the Pros |url=https://www.barrons.com/articles/play-the-closed-end-fund-game-with-the-pros-51618399802 |access-date=7 May 2023 |publisher=Barron's/Dow Jones |date=April 14, 2021}}</ref> and that individuals tend to be "noise traders", whose expectations about future returns are too high in some periods and too low in others, or who believe they have special information that provides them with insight about future trends;<ref>{{cite journal |title=Lee et al p. 78-79}}</ref> and
* individual investors' tendency to sell closed-end funds near the end of the year, which causes discounts to widen near the end of the year.<ref name="Herzfeld p. 8-17"/>

However, financial economists [[Zvi Bodie]], Alex Kane and [[Alan Marcus|Alan J. Marcus]] have opined that the various hypotheses put forth do not fully explain the persistence of discount pricing.<ref name="bodiebook"/>{{rp|86}}