Premium
The Secondary Market for Hedge Funds and the Closed Hedge Fund Premium
Author(s) -
RAMADORAI TARUN
Publication year - 2012
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2012.01723.x
Subject(s) - open end fund , hedge fund , alternative beta , closed end fund , fund of funds , hedge accounting , returns based style analysis , business , performance fee , fund administration , financial economics , mutual fund , economics , institutional investor , finance , market liquidity , corporate governance
Rational theories of the closed‐end fund premium puzzle highlight fund share and asset illiquidity, managerial ability, and fees as important determinants of the premium. Several of these attributes are difficult to measure for mutual funds, and easier to measure for hedge funds. This paper employs new data from a secondary market for hedge funds, discovers a closed‐hedge fund premium that is highly correlated with the closed‐end mutual fund premium, and shows that the closed‐hedge fund premium is well explained by variables suggested by rational theories. Sentiment‐based explanations do not find support in the data.