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Closed-End Fund Betas

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  • Michael Bleaney
  • R. Todd Smith

Abstract

The CAPM can explain closed-end fund (CEF) discounts as a consequence of the higher betas on CEF shares than on their underlying portfolios. The difference in betas is much greater for international funds and for bond funds than for domestic equity funds. CEF shares carry both more idiosyncratic risk (usually) and more systematic risk than their portfolios, and also exhibit excess volatility. The difference in betas reflects the sensitivity of CEF price returns to market returns, after controlling for portfolio returns. The influence of home market returns on international fund prices is particularly marked in UK funds.

Suggested Citation

  • Michael Bleaney & R. Todd Smith, "undated". "Closed-End Fund Betas," Discussion Papers 06/04, University of Nottingham, School of Economics.
  • Handle: RePEc:not:notecp:06/04
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    File URL: http://www.nottingham.ac.uk/economics/documents/discussion-papers/06-04.pdf
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    References listed on IDEAS

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    1. Elton, Edwin J & Gruber, Martin J & Busse, Jeffrey A, 1998. "Do Investors Care about Sentiment?," The Journal of Business, University of Chicago Press, vol. 71(4), pages 477-500, October.
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    3. 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, vol. 98(4), pages 703-738, August.
    4. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
    5. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1991. " Investor Sentiment and the Closed-End Fund Puzzle," Journal of Finance, American Finance Association, vol. 46(1), pages 75-109, March.
    6. Pontiff, Jeffrey, 1997. "Excess Volatility and Closed-End Funds," American Economic Review, American Economic Association, pages 155-169.
    7. Edwin J. Elton & Martin J. Gruber & Jeffrey A. Busse, 1998. "Do Investors Care About Sentiment?," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-028, New York University, Leonard N. Stern School of Business-.
    8. Pontiff, Jeffrey, 1995. "Closed-end fund premia and returns Implications for financial market equilibrium," Journal of Financial Economics, Elsevier, vol. 37(3), pages 341-370, March.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Heuristics vs expertise
      by chris dillow in Stumbling and Mumbling on 2006-07-11 19:09:04

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    Cited by:

    1. Cornelia Pop & Adina Calugaru & Mihaela Marcu, 2005. "Romanian Closed-End Funds – An Overview," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    2. Lahr, Henry & Kaserer, Christoph, 2009. "Net asset value discounts in listed private equity funds," CEFS Working Paper Series 2009-12, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).

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