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Portfolio concentration and closed-end fund discounts: Evidence from the China market

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  • Chan, Kalok
  • Kot, Hung Wan
  • Li, Desmond
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    Abstract

    This paper provides an analysis of the determinants of the closed-end fund discount in Mainland China. We focus on the diversification level of closed-end funds as the investor clienteles for closed-end funds in Mainland China are different from other markets. Our empirical evidence shows that discount is strongly and negatively related to stock concentration as measured by the number of stocks in the fund or Herfindahl index. We also find the discount decreases with the dividend payout and turnover, suggesting that investors are willing to pay a higher price (lower discount) for a fund that pays more dividends and has higher turnover.

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    Bibliographic Info

    Article provided by Elsevier in its journal Emerging Markets Review.

    Volume (Year): 9 (2008)
    Issue (Month): 2 (June)
    Pages: 129-143

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    Handle: RePEc:eee:ememar:v:9:y:2008:i:2:p:129-143

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    Web page: http://www.elsevier.com/locate/inca/620356

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    1. Barclay, Michael J. & Holderness, Clifford G. & Pontiff, Jeffrey, 1993. "Private benefits from block ownership and discounts on closed-end funds," Journal of Financial Economics, Elsevier, vol. 33(3), pages 263-291, June.
    2. Elton, Edwin J & Gruber, Martin J & Busse, Jeffrey A, 1998. "Do Investors Care about Sentiment?," The Journal of Business, University of Chicago Press, vol. 71(4), pages 477-500, October.
    3. John A. Doukas & Nikolaos T. Milonas, 2004. "Investor Sentiment and the Closed-end Fund Puzzle: Out-of-sample Evidence," European Financial Management, European Financial Management Association, vol. 10(2), pages 235-266.
    4. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    5. Brickley, James A & Manaster, Steven & Schallheim, James, 1991. "The Tax-Timing Option and the Discounts on Closed-End Investment Companies," The Journal of Business, University of Chicago Press, vol. 64(3), pages 287-312, July.
    6. Kim, Chang-Soo, 1994. "Investor Tax-Trading Opportunities and Discounts on Closed-End Mutual Funds," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 17(1), pages 65-75, Spring.
    7. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2005. "On the Industry Concentration of Actively Managed Equity Mutual Funds," Journal of Finance, American Finance Association, vol. 60(4), pages 1983-2011, 08.
    8. Eduardo Levy-Yeyati & Angel Ubide, 2000. "Crises, Contagion, and the Closed-End Country Fund Puzzle," IMF Staff Papers, Palgrave Macmillan, vol. 47(1), pages 3.
    9. Fuertes, Ana-Maria & Thomas, Dylan C., 2006. "Large market shocks and abnormal closed-end-fund price behaviour," Journal of Banking & Finance, Elsevier, vol. 30(9), pages 2517-2535, September.
    10. Jain, Ravi & Xia, Yihong & Wu, Matthew Qianli, 2004. "Illiquidity and Closed-End Country Fund Discounts," Working Papers 04-3, University of Pennsylvania, Wharton School, Weiss Center.
    11. Swaminathan, Bhaskaran, 1996. "Time-Varying Expected Small Firm Returns and Closed-End Fund Discounts," Review of Financial Studies, Society for Financial Studies, vol. 9(3), pages 845-87.
    12. Edwin J. Elton & Martin J. Gruber & Jeffrey A. Busse, 1998. "Do Investors Care About Sentiment?," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-028, New York University, Leonard N. Stern School of Business-.
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