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Investor Reaction to Salient News in Closed-End Country Funds

  • Peter Klibanoff

    (J.L. Kellogg Graduate School of Management, Northwestern University,)

  • Owen Lamont

    (Graduate School of Business, University of Chicago and NBER,)

  • Thierry A. Wizman

    (Caspian Securities, Inc.)

We use panel data on prices and net asset values to test whether dramatic country-specific news affects the response of closed-end country fund prices to asset value. In a typical week, prices underreact to changes in fundamentals; the (short-run) elasticity of price with respect to asset value is significantly less than one. In weeks with news appearing on the front page of "The New York Times", prices react much more; the elasticity of price with respect to asset value is closer to one. These results are consistent with the hypothesis that news events lead some investors to react more quickly. Copyright The American Finance Association 1998.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 53 (1998)
Issue (Month): 2 (04)
Pages: 673-699

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Handle: RePEc:bla:jfinan:v:53:y:1998:i:2:p:673-699
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