Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 13, 2011 erstellt
Description:
We examine the roles of rational and behavioural factors in explaining long-run premiums/discounts on closed-end funds, using evidence on equity funds from the US and UK. Although the processes by which fund prices converge towards long-run premiums or discounts are similar in the two countries, there is a remarkable difference in what influences the cross-section of premiums: in the US two behavioural factors (idiosyncratic risks and dividend payouts) have a positive influence, whereas in the UK two rational factors (management fees and liquidity) have a negative influence. While these cross-sectional factors are highly significant, they cannot explain why premiums are not positive in the US (-3% average) and so highly negative in the UK (-12% average). The main contribution of our paper is to show that a fund trades at a discount because there is an arbitrage cap on its premium resulting from new issues. This censors the distribution of the premium and causes its mean to be negative. The more idiosyncratic is a fund's risk, the more difficult it is to make a copycat issue and the smaller is the cap's downward influence on the premium. Because of the cap, the existence of a discount is a rational phenomenon for all types of closed-end fund, albeit modified for equity funds by behavioural factors in the US and by rational factors in the UK