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A Model Of The Discounts On Closed End Mutual Funds The Quantification Fo Investor Sentiment And The Inability Of Arbitrage To Force Closed End Fund Share Prices To Par
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Book Synopsis A Model of the Discounts on Closed-end Mutual Funds, the Quantification Fo Investor Sentiment, and the Inability of Arbitrage to Force Closed-end Fund Share Prices to Par by : Sean Masaki Flynn
Download or read book A Model of the Discounts on Closed-end Mutual Funds, the Quantification Fo Investor Sentiment, and the Inability of Arbitrage to Force Closed-end Fund Share Prices to Par written by Sean Masaki Flynn and published by . This book was released on 2002 with total page 416 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Sentiment, Expenses and Arbitrage in Explaining the Discount on Closed-End Funds by : Gordon Gemmill
Download or read book Sentiment, Expenses and Arbitrage in Explaining the Discount on Closed-End Funds written by Gordon Gemmill and published by . This book was released on 2000 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theory suggests that the persistent discount on closed-end funds is caused by management expenses, while investor sentiment contributes to its volatility. However, empirical studies have tended to support neither of these theories. In this paper we begin by showing how expenses and arbitrage may generate a plausible discount in the UK of about 13%. Cross-sectional tests on 158 equity funds over seven years find that the direct causes of smaller discounts are youth, ease of replication, large size and high dividend yield. Once age of fund is taken into account, the results support the hypothesis that larger expenses are associated with larger discounts. To test for the short-term impact of sentiment on the discount, we use monthly flows from retail investors into open-end funds as a proxy for retail-investor sentiment. Based on cointegration analysis of data by sector, we find a very strong short-term relationship between the closed-end fund discount and retail-investor sentiment. Finally, using data over the last 30 years, we find that discounts widen when the stockmarket is low, at which time small investors hold a much smaller proportion of the funds' shares than normal. Our study supports a rational basis for the existence of a long-run discount, while confirming that both short and medium-term fluctuations are related to investor sentiment.
Book Synopsis The Closed-End Fund Discount Puzzle by : Urbi Garay
Download or read book The Closed-End Fund Discount Puzzle written by Urbi Garay and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic research has focused specifically on the enigmatic behavior of closed-end fund discounts, known in the literature as the closed-end fund discount puzzle. The extant evidence suggests that closed-end funds are issued at a premia with respect to their net asset values but typically trade at discounts thereafter, that the average closed-end fund trades at a significant discount relative to its net asset value, that discounts fluctuate widely over time and also across funds, and that closed-end fund prices converge to their net asset values when they are either liquidated or open-ended. Some of the theories that have been advanced attempting to explain the puzzle are efficient market based explanations and the Investor Sentiment Hypothesis. None of the theories, either individually or collectively, provide a sufficient explanation for the pricing of closed-end funds and, therefore, the enigma continues.
Book Synopsis American Doctoral Dissertations by :
Download or read book American Doctoral Dissertations written by and published by . This book was released on 2002 with total page 776 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Implications of Individual Investor Behavior for the Pricing of Closed-end Funds and Small Firms by : Bhaskaran Swaminathan
Download or read book The Implications of Individual Investor Behavior for the Pricing of Closed-end Funds and Small Firms written by Bhaskaran Swaminathan and published by . This book was released on 1994 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Closed-End Fund Discounts in a Rational Agent Economy by : Matthew I. Spiegel
Download or read book Closed-End Fund Discounts in a Rational Agent Economy written by Matthew I. Spiegel and published by . This book was released on 2000 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Nearly any standard financial model concludes that two assets with identical cash flows must sell for the same price. Alas, closed-end mutual fund company share prices seem to violate thisfundamental tenant. Even when one considers several standard frictions, such as taxes and agency costs, classical financial models cannot explain the large persistent discounts foundwithin the data. While the standard financial markets model may not explain the existence of large closed-end fund discounts, this paper shows that a rather close version of it does. In anotherwise frictionless market, if asset supplies vary randomly over time and agents posses finite lives a closed-end mutual fund's stock price may not track its net asset value. Furthermore, the analysis provides a number of conditions under which these discrepancies will lead to the existence of systematic discounts for the mutual fund's shares. In addition, the model provides predictions regarding the correlation between current closed-end fund discounts and current changes in stock prices and future changes in corporate productivity. As the analysis shows the same parameter values that lead to systematic discounts also lead to other fund price characteristics that resemble many of the results found within empirical studies.
Book Synopsis Dissertation Abstracts International by :
Download or read book Dissertation Abstracts International written by and published by . This book was released on 2003 with total page 556 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Incomplete Information and the Closed-end Fund Discount by :
Download or read book Incomplete Information and the Closed-end Fund Discount written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Handbook of the Economics of Finance by : G. Constantinides
Download or read book Handbook of the Economics of Finance written by G. Constantinides and published by Elsevier. This book was released on 2003-11-04 with total page 698 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.
Book Synopsis The Persistence and Predictability of Closed-End Fund Discounts by : Burton G. Malkiel
Download or read book The Persistence and Predictability of Closed-End Fund Discounts written by Burton G. Malkiel and published by . This book was released on 2005 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is well-known that the level of closed-end fund discounts appears to predict the corresponding fund's future returns. We further document that such predictability decays slowly. The popular explanations, including the tax effect, investor sentiment risk, and the funds's dividend yield, do not fully account for the observed predictability. At the same time, discounts are very persistent especially on an aggregate level. Using an AR(1) model for discounts, we demonstrate that such predictability is largely due to persistence in discounts. Our calibration exercise can produce most characteristics of an aggregate equity close-end fund index over the ten year period from 1993 to 2001. A cross-sectional study links discount persistence to rational factors such as dividend yield, unrealized capital gains, and turnover. In addition, we document a second independent source for predicting fund returns from large stock portfolio returns. This suggests that the well-known lead lag relationship between large stocks and small stocks also exists between NAV returns and fund returns. Finally, we find no evidence for quot;excess volatilityquot; on the aggregate level both for conditional and unconditional volatility.
Book Synopsis Guide to Closed-End Mutual Funds by : Weiss Ratings, Inc
Download or read book Guide to Closed-End Mutual Funds written by Weiss Ratings, Inc and published by Weiss Ratings Incorporated. This book was released on 2003 with total page 311 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Weiss Ratings' Guide to Closed-End Mutual Funds by : TheStreet.com Ratings, Incorporated
Download or read book Weiss Ratings' Guide to Closed-End Mutual Funds written by TheStreet.com Ratings, Incorporated and published by Thestreet.com Ratings. This book was released on 2006-01 with total page 498 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A Rational Model of the Closed-end Fund Discount by : Jonathan B. Berk
Download or read book A Rational Model of the Closed-end Fund Discount written by Jonathan B. Berk and published by . This book was released on 2004 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: The discount on closed-end funds is widely accepted as proof of investor irrationality. We show,however, that a parsimonious rational model can generate a discount that exhibits many of the characteristics observed in practice. The only required features of the model are that managers have (imperfectly observable) ability to generate excess returns; they sign long-term contracts guaranteeing them a fee each year equal to a fixed fraction of assets under management; and they can leave to earn more money elsewhere if they turn out to be good. With these assumptions, time-varying discounts are not an anomaly in a rational world with competitive investors -- they are required.
Book Synopsis Closed-End Fund Discounts and Premiums by : Michael S. Rozeff
Download or read book Closed-End Fund Discounts and Premiums written by Michael S. Rozeff and published by . This book was released on 2007 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews and analyzes five areas relating to closed-end funds. (1) Issues relating to the existence of closed-funds and why rational investors subscribe to new issues of them. A detailed set of model assumptions is examined in order to understand the basis for closed-end funds coming into existence. (2) The time-series properties of discounts. (3) The cross-sectional variation in closed-end fund discounts. (4) Issues of weak and semi-strong form efficiency. (5) Issues relating to the open-ending of closed-end funds.
Book Synopsis A New Behavioural Theory of Closed-End Fund Discount Under the Orthodox Approach by : Michel Guirguis
Download or read book A New Behavioural Theory of Closed-End Fund Discount Under the Orthodox Approach written by Michel Guirguis and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Discount persistence explanation from a behavioural point of view is a new area of research for both academics and practitioners. There have been different attempts to explain the discount deviation by using the limits of arbitrage theory, and psychological theory in terms of conservatism and representativeness heuristic, (Tversky and Kahneman 1974), as an alternative of the expected utility theory. The purpose was to explain deviations from rationality, as the Efficient Market Hypothesis, (EMH), failed to convince that investors formed rational decisions based on Bayesian rules. This article provides a new in-depth theory based on the Christian Orthodox approach. It fully explains the manipulation of thoughts and how they affect the decisions formed by the interactions of both arbitrageurs and noise traders. This article is a breakthrough way of thinking, as it explains the lack of fully rationality and deviations of efficiency by using a religious approach. De Long, Shleifer, Summers and Waldmann or DSSW (1990), provide no indication of how religious factors could affect investor sentiment.
Book Synopsis Closed-End Fund Discounts and Expected Investment Performance by : Robert Ferguson
Download or read book Closed-End Fund Discounts and Expected Investment Performance written by Robert Ferguson and published by . This book was released on 2013 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article provides empirical support for the theory that closed-end fund discounts reflect expected investment performance. Evidence is presented to explain how equity closed-end fund initial public offerings (IPOs) can sell at a premium when existing funds sell at a discount and why the initial IPO premiums decay after the IPO. Relative premium decay data are presented. Tests on (1) the relation between relative premium changes and investment performance following IPOs, (2) relative premium mean-reversion following management changes, and (3) net redemptions following closed-end fund open-endings for funds trading at pre-open-ending announcement discounts individually support and collectively strongly support the theory.
Book Synopsis Capital Gains Overhang and the Closed-end Fund Puzzle, And, Economic Significance and Arbitrage of Idiosyncratic Risk by : David Manzler
Download or read book Capital Gains Overhang and the Closed-end Fund Puzzle, And, Economic Significance and Arbitrage of Idiosyncratic Risk written by David Manzler and published by . This book was released on 2007 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation is divided into two chapters. Chapter I examines the impact of capital gains distribution rules on a closed-end fund (CEF) manager's incentive to collect and trade on information. The central hypothesis is that the treatment of realized capital gains embodied in the U.S. tax code, combined with the form of compensation contract offered CEF mangers, creates an "overhang" effect on CEF managers' incentives to optimally trade the fund portfolio. We model the overhang effect and show that (1) there exists an equilibrium in which CEF managers collect private information in the early stages of the fund (when no lock-in effect exists) but then choose to be uninformed in later stages (when the lock-in effect exists), and (2) rational-expectations pricing of the expected cash flows and risk resulting from the information equilibrium results in CEFs initially trading at a premium and subsequently trading at a discount. In addition, we examine the empirical implications from the model and find, consistent with the model, a significant negative relation between future risk adjusted performance and current unrealized capital gains as well a significant positive relation between NAV premiums and future risk adjusted performance. In addition we show there are two separate effects from unrealized capital gains: (1) the Malkiel (1977) tax effect on CEF investors and (2) the manager incentive-capital gain related effect. Chapter II examines the economic significance of idiosyncratic risk in the context of arbitrage profits as well the robustness of idiosyncratic risk estimates relative to additional known systematic risks. We estimate idiosyncratic risk using both rolling and single time-series EGARCH methods and form high and low idiosyncratic risk portfolios. After controlling for liquidity risk and momentum, we conclude that abnormal returns to idiosyncratic risk arbitrage strategies are not statistically and/or economically significant. Furthermore we find no evidence of priced idiosyncratic risk in closed-end funds. Finally, we find no relation between idiosyncratic risk and stock returns in Fama-MacBeth cross-sectional regressions.
