Equity closed-end fund discounts and taxes

Document Type

Article

Publication Title

Review of Financial Economics

Publication Date

7-1-2023

Abstract

After documenting CRSP errors in classifying the tax status of distributions, we make use of two important institutional features that the related literature has ignored: (i) tax rate changes and (ii) non-taxable distributions. We find that taxable distributions lead to discount reductions, and the reduction is greater during high tax periods than during low tax periods. By contrast, non-taxable distributions have no discernible impact on the discount, consistent with a tax-based explanation. Importantly, we are able to rule out a competing short-term trading hypothesis. Taken together, our results highlight the importance of personal taxes in explaining closed-end fund discounts.

Volume

41

Issue

3

First Page

269

Last Page

282

DOI

10.1002/rfe.1175

ISSN

10583300

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