Open-Ending of Closed-End Funds in the CR: Price and Discount Reaction - Empirical Evidence

This study focuses on the closed-end funds in the Czech Republic. Using event-study methodology and weekly data for 24 funds from July 1996 to July 2001, this paper investigates the price and discount reaction to key events associated with the open-ending of the closed-end funds. The findings reveal statistically significant reactions to the change of the institutional framework. Positive abnormal returns and a substantial decrease in discounts can be observed during the announcement of the legal change. However, there was no statistically significant reaction to public announcements of the open-ending of individual closed-end funds. Apparently, the anticipation of such announcements was incorporated in the reaction to general legal change. Finally the study gives evidence of different discounts for two particular fund groups. These results lend considerable support to the conclusion that the Czech fund market is efficient, at least in its ability to respond to new essential information.