Investors preferred closed-end funds to mutual funds because closed-end funds offered the possibility of greater returns due to their use of leverage and the history of their shares trading at premiums.
That’s about the 1920s. It is from Matthew P. Fink’s quite interesting and useful The Rise of Mutual Funds: An Insider’s View.
Excellent! Hats off. Good grab.
I think the rationale for the premiums on closed-end funds
in the late 1920s was that investors expected the managers
of those funds to engage in market manipulation to drive up
the prices of their holdings and then take profits. It’s not
clear whether they actually succeeded in doing so; Galbraith
thought so, but more recent research suggests otherwise.
Still, this was the public perception which probably led to
the existence of premia.
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