True or False? Agency costs cannot explain the existence of closed-end investment fund discounts.

Correct Answer: True

If agency costs are positive, then funds should never get started (at a premium) as long as no-load open-end funds exist. Agency costs also cannot explain the wide variations in discounts over time. Neither management fees (which are extremely stable) nor expectations of performance can possibly vary enough to explain the observed time-series movement of individual fund discounts, nor the variation in the average discount across funds.