Fear and Closed-End Fund Discounts
AbstractClosed end fund (CEF) discounts have intrigued researchers for decades. Of the many explanations offered, the behavioural framework of Lee et al. (1991), which posits noise traders subject to sentiment, is the most discussed. In this article, we contribute some novel evidence to the evaluation of this theory by examining the role of implied market volatility (VIX, i.e., the ¡°fear index¡±) in fund discounts using a dynamic conditional correlation (DCC) approach. We find that VIX has almost no role in determining discounts except during periods of extreme market turbulence, providing strong but indirect evidence for the sentiment story.
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Bibliographic InfoPaper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2012-07.
Date of creation: Oct 2012
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Closed-end fund; discount; investor sentiment; dynamic conditional correlation; multivariate GARCH;
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-2012-10-20 (All new papers)
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