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

Author

Listed:
  • Laurence Copeland

    (Cardiff Business School)

Abstract

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 ‡uctuations are harder to reconcile with an arbitrage-free equilibrium. In time series terms, they appear to exhibit heavily nonlinear behaviour, perhaps best represented by an Exponential Smooth- Transition Autoregressive (ESTAR) model.

Suggested Citation

  • Laurence Copeland, 2005. "Arbitrage Bounds and the Time Series Properties of the Discount on UK Closed-End Mutual Funds," Finance 0504007, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0504007
    Note: Type of Document - pdf; pages: 48
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0504/0504007.pdf
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    Keywords

    closed-end mutual funds; ESTAR; stationarity;
    All these keywords.

    JEL classification:

    • G - Financial Economics

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