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Short sale restrictions, differences of opinion, and single-country, closed-end fund discount

  • Sanning, Lee W.
  • Skiba, Alexandre
  • Skiba, Hilla
Registered author(s):

    The purpose of this paper is to study the closed-end fund discount in Miller's (1977) framework. Miller's theory states that in the simultaneous presence of (1) short sale restrictions and (2) dispersion of investors' opinions, securities become overvalued. We show that discounts of single-country, closed-end funds are related to Miller's two conditions. Consistent with theoretical predictions, we find that neither dispersion of investor opinion nor short sale restrictions alone are positively related to the discount. However, when both conditions exist simultaneously, fund discounts increase.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1057521913000458
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    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 29 (2013)
    Issue (Month): C ()
    Pages: 44-50

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    Handle: RePEc:eee:finana:v:29:y:2013:i:c:p:44-50
    DOI: 10.1016/j.irfa.2013.03.013
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620166

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    1. 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.
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    9. Harrison Hong & Jeremy C. Stein, 2003. "Differences of Opinion, Short-Sales Constraints, and Market Crashes," Review of Financial Studies, Society for Financial Studies, vol. 16(2), pages 487-525.
    10. Boudreaux, Kenneth J, 1973. "Discounts and Premiums on Closed-End Mutual Funds: A Study in Valuation," Journal of Finance, American Finance Association, vol. 28(2), pages 515-22, May.
    11. Bodurtha, James N, Jr & Kim, Dong-Soon & Lee, Charles M C, 1995. "Closed-End Country Funds and U.S. Market Sentiment," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 879-918.
    12. Bonser-Neal, Catherine, et al, 1990. " International Investment Restrictions and Closed-End Country Fund Prices," Journal of Finance, American Finance Association, vol. 45(2), pages 523-47, June.
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