Closed-End Funds and Turnover Restrictions

Posted: 20 Aug 2002

See all articles by Nusret Cakici

Nusret Cakici

Fordham university

Anthony Tessitore

City of London Investment Group PLC - Quantitative Management Limited

Nilufer Usmen

Montclair State University - School of Business

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.

Suggested Citation

Cakici, Nusret and Tessitore, Anthony and Usmen, Nilufer, Closed-End Funds and Turnover Restrictions. Financial Analysts Journal, Vol. 58, No. 3, May/June 2002, Available at SSRN: https://ssrn.com/abstract=316582

Nusret Cakici (Contact Author)

Fordham university ( email )

113 West 60th Street
New York, NY 10023
United States
2017473227 (Phone)
07446 (Fax)

Anthony Tessitore

City of London Investment Group PLC - Quantitative Management Limited ( email )

510 Thornall Street
Suite 220
Edison, NJ 08837
United States

Nilufer Usmen

Montclair State University - School of Business ( email )

Upper Montclair, NJ 07043
United States
973-655-7075 (Phone)

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