Information Asymmetries And Closed-End Funds

Abstract

We examine the degree to which information asymmetries play a role in the closed-end fund seasoned offerings and introduce a new explanation for why funds with low information asymmetry also choose to issue.  Interpreting turnover ratio as a proxy for information asymmetry, we test for differences in turnover across fund types and find that equity and international fund issuers generate significantly higher turnover than debt and domestic fund issuers respectively. We then investigate the motives for issuing funds with low information asymmetry and discover that they are good asset market timers, i.e. issue when underlying asset markets are relatively underpriced. By timing asset markets, such funds generate better long-run returns and maximize the interests of long-term investors.