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Closed-End Fund Betas

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  • Michael Bleaney
  • R. Todd Smith

Abstract

The CAPM can explain closed-end fund (CEF) discounts as a consequence of the higher betas on CEF shares than on their underlying portfolios. The difference in betas is much greater for international funds and for bond funds than for domestic equity funds. CEF shares carry both more idiosyncratic risk (usually) and more systematic risk than their portfolios, and also exhibit excess volatility. The difference in betas reflects the sensitivity of CEF price returns to market returns, after controlling for portfolio returns. The influence of home market returns on international fund prices is particularly marked in UK funds.

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Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 06/04.

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Handle: RePEc:not:notecp:06/04

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  1. Newey, W.K. & West, K.D., 1992. "Automatic Lag Selection in Covariance Matrix Estimation," Working papers, Wisconsin Madison - Social Systems 9220, Wisconsin Madison - Social Systems.
  2. Elton, Edwin J & Gruber, Martin J & Busse, Jeffrey A, 1998. "Do Investors Care about Sentiment?," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 71(4), pages 477-500, October.
  3. Pontiff, Jeffrey, 1995. "Closed-end fund premia and returns Implications for financial market equilibrium," Journal of Financial Economics, Elsevier, Elsevier, vol. 37(3), pages 341-370, March.
  4. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1991. " Investor Sentiment and the Closed-End Fund Puzzle," Journal of Finance, American Finance Association, American Finance Association, vol. 46(1), pages 75-109, March.
  5. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(4), pages 703-38, August.
  6. 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, New York University, Leonard N. Stern School of Business- 98-028, New York University, Leonard N. Stern School of Business-.
  7. Pontiff, Jeffrey, 1997. "Excess Volatility and Closed-End Funds," American Economic Review, American Economic Association, American Economic Association, vol. 87(1), pages 155-69, March.
  8. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, American Finance Association, vol. 53(5), pages 1589-1622, October.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Heuristics vs expertise
    by chris dillow in Stumbling and Mumbling on 2006-07-11 14:09:04
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Cited by:
  1. Cornelia Pop & Adina Calugaru & Mihaela Marcu, 2005. "Romanian Closed-End Funds – An Overview," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business, Babes-Bolyai University, Faculty of Business.
  2. Lahr, Henry & Kaserer, Christoph, 2009. "Net asset value discounts in listed private equity funds," CEFS Working Paper Series 2009-12, Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München.

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