A POSSIBLE RECONCILIATION OF SOME OF THE CONFLICTING FINDINGS ON CLOSED‐END FUND DISCOUNTS: A NOTE

The most obvious explanation for the closed‐end fund puzzle, the existence of managerial contribution (i.e., managerial performance less managerial fees), has been called into disrepute because of the inability of researchers to consistently document a negative relationship between such benefits and discounts. We present a model which shows that it is possible to account for some of the stylized facts without abandoning market efficiency and rationality. It is suggested that when one takes into consideration the impact of managerial contribution on the probability of open‐ending, a negative relationship between managerial contribution and discounts actually may result.