Barone-Adesi, Giovanni Kim, Youngsoo 1999 We model the closed-end fund discount/premium in a version of Merton’s (1978) asset pricing model with incomplete information. In this economy, investors trade only assets which they “ know about” . The model generates a closed-end fund discount or premium, depending on risk-aversion parameters. The fund share price reverts to the net asset value on open-ending of the fund. The discount/premium is a result of two economic forces: (1) the fund manager’s objective is to maximize expected utility of her fee income rather than the welfare of fund shareholders. Mis-alignment of objectives of the fund manager and shareholders results in discount/premium, and (2) for given risk aversion parameters, diversification benefits to investors determine the size of the discount/premium. Pontiff (1996) documents a positive relation between discounts and unhedgeable risk. This evidence along with other findings leads Pontiff to conclude that discounts appear to be a result of mispricing. Our model provides an alternative interpretation on the positive relation found by Pontiff based on the economic forces depicted above. application/pdf https://susi.usi.ch/global/documents/318054 https://n2t.net/ark:/12658/srd1318054 https://susi.usi.ch/documents/318054/files/wp9905.pdf eng info:eu-repo/semantics/altIdentifier/ark/12658/srd1318054 info:eu-repo/semantics/openAccess License undefined info:eu-repo/classification/udc/33 Incomplete information and the closed-end fund discount http://purl.org/coar/resource_type/c_816b