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Is differential sentiment a cause of closed-end country fund premia? An empirical examination of the Australian case

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  • Marc Simpson
  • Sanjay Ramchander
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    Abstract

    One of the most puzzling empirical irregularities in finance is the persistence of discounts and premia on the net asset values (NAV) of closed-end country funds. Unlike previous papers, the present study adopts a novel approach to directly test the hypothesis that such premia are a reflection of differences in foreign and domestic investors' sentiments. The study employs Australian and US consumer survey data to illustrate how divergent consumer sentiments are useful in explaining the time varying pattern of discounts and premia on the First Australian Fund. While controlling for foreign and domestic market returns, as well as exchange rate changes, it is found that the more optimistic US consumers are over Australian consumers, the greater the premium on the fund, and vice versa.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

    Volume (Year): 9 (2002)
    Issue (Month): 9 ()
    Pages: 615-619

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    Handle: RePEc:taf:apeclt:v:9:y:2002:i:9:p:615-619

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    Cited by:
    1. Grossmann, Axel & Ozuna, Teofilo & Simpson, Marc W., 2007. "ADR mispricing: Do costly arbitrage and consumer sentiment explain the price deviation?," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 17(4), pages 361-371, October.

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