Arbitrage Bounds and the Time Series Properties of the Discount on UK Closed-End Mutual Funds
AbstractIn a dataset of weekly observations over the period since 1990, the discount on UK closed-end mutual funds is shown to be nonstationary, but reverting to a nonzero long run mean. Although the long run discount could be explained by factors like management expenses etc., its short run arbitrage-free equilibrium. In time series terms, there is evidence of long memory in discounts consistent with a bounded random walk. This conclusion is supported by explicit nonlinearity tests, and by results which suggest the behaviour of the discount is perhaps best represented by one of the class of Smooth-Transition Autoregressive (STAR) models.
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Bibliographic InfoPaper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2006/11.
Length: 37 pages
Date of creation: Feb 2006
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Other versions of this item:
- Laurence Copeland, 2007. "Arbitrage Bounds and the Time Series Properties of the Discount on UK Closed-End Mutual Funds," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1-2), pages 313-330.
- Laurence Copeland, 2005. "Arbitrage Bounds and the Time Series Properties of the Discount on UK Closed-End Mutual Funds," Finance 0504007, EconWPA.
- NEP-ALL-2006-02-19 (All new papers)
- NEP-ETS-2006-02-19 (Econometric Time Series)
- NEP-FMK-2006-02-19 (Financial Markets)
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- Christos Alexakis & Emmanouil Mavrakis, 2010. "Is Moderate Market Performance in the U.S. a Sufficient Condition for Abnormal Returns on CEFs?," International Advances in Economic Research, Springer, vol. 16(1), pages 80-95, February.
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