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Arbitrage Bounds and the Time Series Properties of the Discount on UK Closed-End Mutual Funds




In a dataset of weekly observations over the period since 1990, the discount on UK closed-end mutual funds is shown to be nonstationary, but reverting to a nonzero long run mean. Although the long run discount could be explained by factors like management expenses etc., its short run arbitrage-free equilibrium. In time series terms, there is evidence of long memory in discounts consistent with a bounded random walk. This conclusion is supported by explicit nonlinearity tests, and by results which suggest the behaviour of the discount is perhaps best represented by one of the class of Smooth-Transition Autoregressive (STAR) models.

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  • Copeland, Laurence, 2006. "Arbitrage Bounds and the Time Series Properties of the Discount on UK Closed-End Mutual Funds," Cardiff Economics Working Papers E2006/11, Cardiff University, Cardiff Business School, Economics Section.
  • Handle: RePEc:cdf:wpaper:2006/11

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    1. Davidson, James & Sibbertsen, Philipp, 2009. "Tests of bias in log-periodogram regression," Economics Letters, Elsevier, vol. 102(2), pages 83-86, February.
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    Cited by:

    1. Emmanouil Mavrakis, 2011. "Abnormal Returns on CEFs and in Pre-and-Post-Credit-Crunch Periods," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 55-70.
    2. repec:kap:iaecre:v:16:y:2010:i:1:p:80-95 is not listed on IDEAS
    3. Christos Alexakis & Emmanouil Mavrakis, 2010. "Is Moderate Market Performance in the U.S. a Sufficient Condition for Abnormal Returns on CEFs?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 16(1), pages 80-95, February.

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    Mutual Funds; ESTAR;

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