Performance persistence of closed-end funds |
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Authors: | Elyas Elyasiani Jingyi Jia |
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Institution: | (1) Department of Finance, Fox School of Business and Management, Temple University, Philadelphia, PA 19122, USA;(2) Department of Economics and Finance, School of Business, Southern Illinois University, Edwardsville, IL 62026-1102, USA |
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Abstract: | Studies of performance persistence of closed-end funds (CEFs) use two measures of persistence; autocorrelation and rank correlation
of performance. The autocorrelation measure offers limited information because it cannot separate persistence relative to
the market and to the industry. The rank correlation measure is generally applied to two periods, disregarding multi-period
persistence. We investigate performance persistence of CEFs in terms of both market price return and net asset value return
using contingency tables and multiple regression models. Jensen’s alpha and the Sharpe ratio are used as measures of risk-adjusted
performance. We test three hypotheses: (i) CEFs performing better than the industry median will do so persistently, (ii) CEFs
outperform the market persistently; and (iii) performance persistence can be partly explained by dividend yield. The findings
are fivefold. First, the number of persistent years varies with the models used to calculate risk-adjusted performance. Second,
with 4-index unconditional beta fixed variance model, CEFs persistently beat their industry for six out of 10 years in terms
of both market price return and net asset value return. Third, with a 4-index unconditional beta fixed variance model, we
find performance persistence relative to market for 6 and 7 years, out of the 10 years considered, in terms of market price
return and net asset value return, respectively. Fourth, the disaggregate sample tests show that performance of municipal
bond funds is more persistent than equity funds and taxable bond funds. Fifth, dividend patterns can partially explain persistence
with liquidity as control. |
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Keywords: | |
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