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

Author

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  • 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, EconWPA.
  • 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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    References listed on IDEAS

    as
    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. 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.
    2. repec:kap:iaecre:v:16:y:2010:i:1:p:80-95 is not listed on IDEAS
    3. 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.

    More about this item

    Keywords

    closed-end mutual funds; ESTAR; stationarity;

    JEL classification:

    • G - Financial Economics

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