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

  • Laurence Copeland

    (Cardiff Business School)

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.

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Paper provided by EconWPA in its series Finance with number 0504007.

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Length: 48 pages
Date of creation: 07 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0504007
Note: Type of Document - pdf; pages: 48
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