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Is differential sentiment a cause of closed-end country fund premia? An empirical examination of the Australian case

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  • Marc Simpson
  • Sanjay Ramchander

Abstract

One of the most puzzling empirical irregularities in finance is the persistence of discounts and premia on the net asset values (NAV) of closed-end country funds. Unlike previous papers, the present study adopts a novel approach to directly test the hypothesis that such premia are a reflection of differences in foreign and domestic investors' sentiments. The study employs Australian and US consumer survey data to illustrate how divergent consumer sentiments are useful in explaining the time varying pattern of discounts and premia on the First Australian Fund. While controlling for foreign and domestic market returns, as well as exchange rate changes, it is found that the more optimistic US consumers are over Australian consumers, the greater the premium on the fund, and vice versa.

Suggested Citation

  • Marc Simpson & Sanjay Ramchander, 2002. "Is differential sentiment a cause of closed-end country fund premia? An empirical examination of the Australian case," Applied Economics Letters, Taylor & Francis Journals, vol. 9(9), pages 615-619.
  • Handle: RePEc:taf:apeclt:v:9:y:2002:i:9:p:615-619 DOI: 10.1080/13504850110112567
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    References listed on IDEAS

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    1. Karfakis, Costas J & Moschos, Demetrios M, 1990. "Interest Rate Linkages within the European Monetary System: A Time Series Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(3), pages 389-394, August.
    2. Katsimbris, George M & Miller, Stephen M, 1993. "Interest Rate Linkages within the European Monetary System: Further Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(4), pages 771-779, November.
    3. repec:syd:wpaper:144 is not listed on IDEAS
    4. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-576, June.
    5. Plosser, Charles I. & Geert Rouwenhorst, K., 1994. "International term structures and real economic growth," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 133-155, February.
    6. Hagen, Jurgen von & Fratianni, Michele, 1990. "German dominance in the EMS: evidence from interest rates," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 358-375, December.
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    Cited by:

    1. Grossmann, Axel & Ozuna, Teofilo & Simpson, Marc W., 2007. "ADR mispricing: Do costly arbitrage and consumer sentiment explain the price deviation?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(4), pages 361-371, October.

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