Determinants of the Closed-End Fund Puzzle in Real Estate Investment Trusts The primary objective of this paper is to analyze the applicability of existing closed-end fund puzzle theories to real estate investment trusts (REITs). The closed-end fund puzzle refers to a phenomenon, where the net asset value of a fund diverges from its market value. This type of discrepancy should not exist in efficient financial market. REITs offer an interesting framework for examining the phenomenon, since several currently presented closed-end fund puzzle theories are inapplicable to REITs, due to the special legislation governing REITs. In addition to the existing theories and their applicability, the objective is to examine the role of diversification in the REIT closed-end fund puzzle. The research is implemented by bivariate and multivariate cross-sectional regression analyses. The research data consists of 86 equity REITs with 21 fund specific variables. The data set is from the second quarter of 2003. The research is focused on rational explanations of the closed-end fund puzzle. These include unrealized capital appreciation, agency costs, turnover expectations and, finally, liquidity and transparency of investments. The research is unable to substantiate premia to net asset value. Instead, discount to net asset value was related to the size of the fund (as measured by market capitalization), managerial performance and, finally, debt ratio. In addition, the analysis demonstrated that the degree of diversification affects the closed-end fund puzzle in REITs. The finding that diversification contributes to the discount to net asset value has important implications to REIT investment strategies. Based on the research, REIT investment strategies should be focused on a single real estate sector.