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Sentiment and the Interpretation of News about Fundamentals

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The reaction of closed-end fund share prices to changes in portfolio values is on average the same whether funds are trading at discounts or premia and whether the changes in portfolio values are positive or negative. If closed-end fund discounts and premia do correctly measure investor sentiment, then these results suggest that investor sentiment does not affect the market’s reaction to news about fundamentals. Alternatively, discounts and premia may not in fact measure investor sentiment, or sentiment may play no role at all in closed-end fund pricing. Noise-trader risk and trading costs also fail to explain the observed behavior.

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Paper provided by Vassar College Department of Economics in its series Vassar College Department of Economics Working Paper Series with number 72.

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Date of creation: Sep 2005
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Handle: RePEc:vas:papers:72

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  1. Zweig, Martin E, 1973. "An Investor Expectations Stock Price Predictive Model Using Closed-End Fund Premiums," Journal of Finance, American Finance Association, American Finance Association, vol. 28(1), pages 67-78, March.
  2. 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.
  3. Brickley, James A. & Schallheim, James S., 1985. "Lifting the Lid on Closed-End Investment Companies: A Case of Abnormal Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 20(01), pages 107-117, March.
  4. Peavy, John W, III, 1990. "Returns on Initial Public Offerings of Closed-End Funds," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 3(4), pages 695-708.
  5. Sean Masaki Flynn, 2010. "Short Selling And Mispricings When Fundamentals Are Known: Evidence From Nyse‐Traded Closed‐End Funds," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(4), pages 463-486, December.
  6. Charles Lee & Andrei Shleifer & Richard Thaler, 1990. "Investor Sentiment and the Closed-End Fund Puzzle," NBER Working Papers 3465, National Bureau of Economic Research, Inc.
  7. Chen, Nai-fu & Kan, Raymond & Miller, Merton H, 1993. " Are the Discounts on Closed-End Funds a Sentiment Index?," Journal of Finance, American Finance Association, American Finance Association, vol. 48(2), pages 795-800, June.
  8. 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.
  9. Thompson, Rex, 1978. "The information content of discounts and premiums on closed-end fund shares," Journal of Financial Economics, Elsevier, Elsevier, vol. 6(2-3), pages 151-186.
  10. Boudreaux, Kenneth J, 1973. "Discounts and Premiums on Closed-End Mutual Funds: A Study in Valuation," Journal of Finance, American Finance Association, American Finance Association, vol. 28(2), pages 515-22, May.
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