Activist Investors and Close-End Fund Arbitrage

Argh! They beat me to the punch!

In Activist Arbitrage: A Study of Open-Ending Attempts of Closed-End Funds, which was co-written with Michael Bradley, Alon Brav, and Wei Jiang, and which was recently accepted for publication in the Journal of Financial Economics, we conduct a comprehensive empirical study of the attempts of activist arbitrageurs to open-end closed-end funds in the U.S. Unlike the traditional pure-trading arbitrage, activist arbitrageurs do not simply wait for convergence, but rather take actions to open-end the target fund, knowing that upon open-ending the price of the fund’s shares will be forced to converge to the NAV.

For the past three months I’ve been working on a paper with a similar topic: activist investors and closed-end fund arbitrage. I haven’t yet read the aforementioned paper, but I’m sure its a lot more in-depth and technical than my paper. The goal I had with my paper was to create a sort of Idiot’s Guide to Closed-End Fund Arbitrage and Activist Investors. I explain the methods, goals, and arguments of both the activists and fund management, give a walkthrough of some actual proxy contests, and discuss some of the shareholder issues that arise.

I should have my paper finished within the next month or so and I might post it online.

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