The Short-Run Pricing Behavior of Closed-End Funds: Bond vs. Equity Funds
AbstractThis paper investigates the short-run relationship between closed-end fund prices and their net asset values. In particular, we document three systematic differences between the short-run pricing behaviors for stock and bonds funds. For equity funds, we show that returns processes for both prices and asset values have characteristics of a random walk, while bond funds returns are more predictable. Similarly, multivariate GARCH analysis establishes the existence of stronger news and volatility spillover effects between the fund price and the net asset value for bond funds than for stock funds. Finally, we find significantly weaker dynamic conditional correlations between the fund price and its fundamental for bond funds after the Lehman Brothers failure, whereas no such evidence is found for stock funds. To explain these findings, we propose a mechanism, based on bond market illiquidity.
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Bibliographic InfoPaper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2012-03.
Date of creation: May 2012
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Closed End Investment Company; Market Efficiency; Market Illiquidity; Common Factors; Dynamic Conditional Correlation;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- G01 - Financial Economics - - General - - - Financial Crises
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
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