Essays on Closed-end Funds

  • Tianna Yang

Student thesis: Phd


This thesis is comprised of three separate empirical chapters on the closed-end fund industry. The first chapter examines the performance and trading volume of UK Venture Capital Trusts (VCTs) focusing on the expiry of the minimum holding period required for investors to gain income tax relief on VCT shares bought at flotation. The second explores the effect of repurchase transactions on the stock liquidity of UK closed-end funds. The third chapter investigates the relationship between pay-performance sensitivity (PPS) and fund risk of US closed-end funds. The first empirical chapter finds negative abnormal returns and permanent increases in trading volumes at and around the expiry of the required holding periods of VCTs. VCTs investing in companies listed on the Alternative Investment Market experience higher abnormal returns and lower abnormal trading volumes than VCTs investing in unquoted companies. VCTs with better asset performance during the required holding period have lower abnormal returns and higher abnormal trading volumes. Income tax relief becomes more generous (increases from 20 to 40 percent) and holding periods shorter (from five to three years) over the sample period. The more generous (to the investors) the income tax relief, the higher the abnormal returns and the lower the abnormal trading volumes. The second empirical chapter reports that repurchase transactions improve the stock liquidity of closed-end funds suggesting that funds act as "competing market makers". However, the positive liquidity effect of repurchase transactions is short-lived and positively affected by the frequency of repurchase transactions. The positive effect seems to have been increased by the change in repurchase regulations on 1st December 2003 that allowed funds to re-issue repurchased shares and appears to have increased the ability of funds to manage their stock liquidity.The third empirical chapter finds that fund risk has a positive impact on fund PPS, suggesting that shareholders need to provide greater compensation incentives to managers of riskier firms to reduce the adverse selection problem. PPS has a positive effect on fund risk, which suggests that, in the closed-end fund industry, the increase in the value of the fund manager's wealth due to a higher PPS outweighs the negative effect of increased pay volatility on the manager's expected utility.
Date of Award1 Aug 2013
Original languageEnglish
Awarding Institution
  • The University of Manchester
SupervisorSusanne Espenlaub (Supervisor) & Arif Khurshed (Supervisor)

Cite this