If closed end funds reliably are issued at a premium and consistently fall to a discount to NAV within a few months, couldn't you just short the fund and long the underlying assets and make free money?

We went over this in my finance course today. Apparently, closed-end funds (CEFs) always issue at a premium, but almost certainly they will dip to a value below the value of its components (i.e. trade at a discount to net asset value).

If you wanted to make "free" money off this, couldn't you just short newly issued CEFs and buy their underlying components? That way you're hedged against broad market movements but also have profit opportunity.

Submitted February 23, 2018 at 12:56AM by anirudh6459 http://ift.tt/2HAZTWB