Activist arbitrage, lifeboats, and closed-end funds

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1 Scopus citations


We present a dynamic rational expectations model of closed-end fund discounts that incorporates feedback effects from activist arbitrage and lifeboats. Both activist arbitrage and lifeboats distort closed-end fund prices and lead to narrower discounts. Furthermore, both activist arbitrage and lifeboats effectuate an ex post wealth transfer from managers to investors but an ex ante wealth transfer from low-ability managers to high-ability managers. On average, investor wealth is unaffected by either activist arbitrage or lifeboats because their potential benefits are factored into higher fund prices. Although lifeboats can reduce takeover attempts, they do not increase expected managerial wealth.

Original languageEnglish (US)
Pages (from-to)271-320
Number of pages50
JournalReview of Finance
Issue number1
StatePublished - Jan 2014

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics


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