We examine the roles of rational and behavioural factors in explaining long-run premiums/discounts on closed-end funds, using evidence on equity funds from the US and UK. Although the processes by which fund prices converge towards long-run premiums or discounts are similar in the two countries,...

This paper provides a new explanation for closed-end fund (CEF) discounts and premiums using the local martingale theory of asset price bubbles. This is a rational asset pricing model that is shown to be consistent with the existing empirical evidence on CEF discounts/premiums. Additional...

We explain the size and the existence of the mutual fund industry by generalizing the standard competitive noisy rational expectations framework with endogenous information acquisition. Since informed agents optimally choose to open mutual funds in order to sell their private information, mutual...