The valuation of corporate debt is an important issue in asset pricing. While there has been an enormous amount of theoretical modeling of corporate bond prices, there has been relatively little empirical testing of these models 1.(...)

In this paper we explore a new explanation of why closed-end bond funds exist when similar open-end funds are available. In general, closed-end funds operate in the less-liquid parts of the market. When we compare closed-end bond funds with a matched set of open-end funds with the same...