Download or read book The Closed End Fund Premium Puzzle and Portfolio Fund Risk Differences written by David Lee Manzler and published by . This book was released on 2008 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seemingly at odds with market efficiency, it is well-known that closed-end funds (CEF) trade at a discount (negative premium) to the net asset values (NAVs) of the portfolios these CEFs hold. Yet, since the CEF shares and the underlying securities held by the CEF trade in completely different markets (with limited means of cross-market arbitrage), the returns on the CEF and the returns on the underlying portfolio may not move in lock-step. In this paper, we investigate whether the returns of closed-end funds (CEFs) behave differently than the returns of the underlying portfolio of securities held by the CEF. We show that, on average, the returns on CEFs have significantly (both economically and statistically) higher risk (i.e., factor loadings) and volatility than the returns on their underlying portfolios (i.e., NAV returns), but have roughly the same mean returns. We also show that the difference in risk and performance between the CEF and its NAV explain cross-sectional variation in the size of difference between the NAV and the price of the CEF (i.e., the CEF premium). Possibly adding to the puzzle though, we find that idiosyncratic risk is positively related to CEF premiums (higher relative idiosyncratic risk for the CEF results in higher relative CEF price to NAV). Our conclusion is that CEFs have a life of their own and that the difference in the return behavior rationally accounts for (at least a portion) of the CEF premium puzzle.

Download or read book Closed End Fund Pricing written by Seth Anderson and published by Springer Science & Business Media. This book was released on 2013-04-17 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt: Closed-End Investment Companies (CEICs) have experienced a significant revival of interest, both as investment vehicles and as the subject of academic research, over the past decade. This academic research has focused on the nature of closed-end funds' discounts and premiums and on the share price behavior of these firms. The first book by the authors, "Closed-End Investment Companies: Issues and Answers," addresses closed-end fund academic articles published prior to 1991. This second book addresses those articles that have appeared since that time. Closed-End Fund Pricing: Theories and Evidence is designed for the academic researcher interested in CEICs and the practitioner interested in using CEICs as an investment vehicle. The authors summarize the evolution of CEICs, present the factors thought to cause CEIC shares to trade at different levels from their net asset values, provide a complete survey of the recent academic literature on this topic, and summarize the current state of research on CEICs.

Download or read book The Investor s Guide to Closed end Funds written by Thomas J. Herzfeld and published by McGraw-Hill Companies. This book was released on 1980 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Closed end Fund Puzzle written by Yunpeng Zhang and published by . This book was released on 2009 with total page 280 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: The closed-end fund (CEF) puzzle, which focuses on the difference between the net asset value (NAV) and the CEF price, has been the focus of academic research for decades. This dissertation includes both theoretical and empirical work studying the existence and fluctuations of equity CEF discounts. Chapter Two sets up an equilibrium asset pricing model for the global CEF. Assuming no communication between the NAV country and the CEF country, the equilibrium NAV and CEF prices are characterized separately in closed forms. In equilibrium, the NAV only depends on the current dividend value and the subjective discount rate. However, the equilibrium CEF price also depends on future dividend dynamics until the open-end date. Furthermore, comparative sensitivity analyses and simulations show how the CEF discount fluctuates with different parameter configurations. In conclusion, this chapter finds three factors important to understand the CEF puzzle: (1) The equilibrium interest rate is partially exogenous with respect to the CEF; (2) The NAV portfolio cannot perfectly be hedged by the market assets space; (3) The total number of outstanding CEF shares is fixed in the financial market. Chapter Three investigates the correlation between the NAV return and the CEF discount in global CEFs by estimating the convenience yield using a two-factor dynamic state space model and constructing liquidity risk measures combining the work of Datar, Naik, and Radcliffe (1998) and Amihud (2002). The empirical results show that the CEF discount is negatively correlated with the NAV return but positively correlated with the liquidity risk measure, which is consistent with Chan, Jain and Xia (2008). Chapter Four proposes a theoretical model for the CEF discount change on the open-end announcement using a representative agent portfolio optimization model. Before the announcement, the CEF discount dynamic follows a mean-reverting process. After the announcement, the discount dynamic is modified to converge to zero on the open-end date, which changes the budget constraint of the portfolio optimization. Assuming that the portfolio holding of CEF shares is unaffected by the announcement, the discount change on that date can be solved numerically. Empirical applications also present positive supports for the proposed explanation.

Download or read book The Closed end Fund Discount written by Elroy Dimson and published by . This book was released on 2002 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Investor Sentiment and the Closed end Fund Puzzle written by Charles Lee and published by . This book was released on 1990 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the proposition that fluctuations in discounts on closed end funds are driven by changes in individual investor sentiment toward closed end funds and other securities. The theory implies that discounts on various funds must move together, that new funds get started when seasoned funds sell at a premium or a small discount, and that discounts on the funds fluctuate together with prices of securities affected by the same investor sentiment. The evidence supports these predictions. In particular, we find that discounts on closed end funds narrow when small stocks do well, as would be expected if closed end funds were subject to the same sentiment as small stocks, whim tern. also to be held by individual investors. The evidence thus suggests that investor sentiment affects security returns.

Download or read book Closed end Funds written by Amy P. Wiseman and published by . This book was released on 2018 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt: Closed-end funds (CEF) are a unique family of mutual funds because they trade at a price that is different than the value of the assets in their portfolios. The deviation of the price of a CEF from the value of its underlying assets is seen as a discount when the price is less than the value and a premium when it is greater. The discrepancy between price and underlying value is perplexing. Why would a seller of fund shares accept less than the value of the assets? Why would a buyer pay more for a share than its assets are worth? These questions are known as the CEF puzzle. This study built multiple regression models using publicly available measures of CEF characteristics to predict premium/discount (PD). Further, these models were used to uncover fund-level factors driving levels of PD. A multiple regression model using 34 measures was generated that predicted a full 87% of the variance PD. Because of the high collinearity and even overlap of the measures used in this model, no statement could be made about the nature of predictors influencing PD. A model using 9 principal components extracted from continuous measures and 4 categorical measures predicted 59% of the variance in PD and yielded a view of factors driving PD. Using PCA components, it was found that whether a fund was sponsored by Pacific Investment Management Company, LLC (PIMCO) was the dominant factor in the level of PD as almost all PIMCO CEFs trade at a premium. Controlling for PIMCO, annualized rate of return followed by distribution rate, past performance measures, prevailed. PD was found to be very strongly determined by past performance.

Download or read book The Dynamic Behavior of Closed End Funds and its Implications for Pricing Forecasting and Trading written by B. Philipp Kellerhals and published by . This book was released on 2002 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Closed-end funds (CEFs) show a distinctive feature in comparison to mutual funds: The market value determined on organized exchanges dynamically differs over time from the reported net asset value by a discount. This predominant capital market anomaly motivates our valuation model to price CEFs. We derive a stochastic pricing model that captures both the price risk of the funds as well as their risk associated with altering discounts. Implementing this theoretical model on a sample of emerging market closed-end funds we are able to infer insights into two potential applications for investors. First, we test the forecasting power of the pricing model to predict CEF market prices. Second, based on information on the premia we implement portfolio trading strategies using filter rules. The results on these suggested applications indicate that our pricing model generates valuable investment information.

Download or read book The Complete Guide to Closed end Funds written by Frank A. Cappiello and published by . This book was released on 1990 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Herzfeld s Guide to Closed end Funds written by Thomas J. Herzfeld and published by McGraw-Hill Companies. This book was released on 1993 with total page 453 pages. Available in PDF, EPUB and Kindle. Book excerpt: Closed-end funds continue to gain prominence as one of today's most popular vehicles for buying stocks and bonds. This text aims to provide individual investors and professionals with access to information on these funds.

Download or read book Closed End Fund Pricing written by Seth Anderson and published by Springer. This book was released on 2013-02-16 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: Closed-End Investment Companies (CEICs) have experienced a significant revival of interest, both as investment vehicles and as the subject of academic research, over the past decade. This academic research has focused on the nature of closed-end funds' discounts and premiums and on the share price behavior of these firms. The first book by the authors, "Closed-End Investment Companies: Issues and Answers," addresses closed-end fund academic articles published prior to 1991. This second book addresses those articles that have appeared since that time. Closed-End Fund Pricing: Theories and Evidence is designed for the academic researcher interested in CEICs and the practitioner interested in using CEICs as an investment vehicle. The authors summarize the evolution of CEICs, present the factors thought to cause CEIC shares to trade at different levels from their net asset values, provide a complete survey of the recent academic literature on this topic, and summarize the current state of research on CEICs.

Download or read book The Premium Discount of Closed End Funds as a Measure of Investor Sentiment written by Dimitrios V. Kousenidis and published by . This book was released on 2016 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the proposition that the premium/discount (PD) of Greek closed-end funds (CEFs) is an accurate proxy for the small-investor sentiment risk. We find that the average PD explains the returns of portfolios of large capitalization and low book-to-market ratio stocks. In this context, we are unable to confirm a link between the perceived PD anomaly and the small size effect. Moreover, we show that the explanatory power of the PD for portfolio returns depends on the form of the asset pricing model used in the regression analysis. Finally, in terms of predictive ability, we find evidence that the PD predicts the size and the book-to-market premiums but little evidence that the PD predicts individual portfolio returns.

Download or read book The Equity Premium Puzzle Intrinsic Growth Monetary Policy An Unexpected Solution Theory Strategy for the Coming Jobless Age written by Robert Shuler and published by Lulu.com. This book was released on 2013-11-25 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book shows we must adjust money supply to account for productivity if deflation is to be avoided. The central banker is not profit oriented and can create money at will, not subject to rational investor constraints. Businesses leverage low interest rates enforced by the central bank to grow and increase employment, compensating for the reduced labor necessary for the former level of goods and services. This leveraged difference in returns is the equity premium. Even a one time productivity increase requires a corresponding permanent increase not in the money supply itself, but in the "rate of increase" of the money supply. Given the steady growth in productivity of the last 100 years, the world economy is now grossly under-stimulated and in danger of precipitous deflation. Both academic models and arguments based on historical events are presented, along with analysis of the meaning of money, investor behavior, and practical techniques for obtaining the equity premium in one's portfolio.

Download or read book Incomplete Information and the Closed end Fund Discount written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We model the closed-end fund discount/premium in a version of Merton's (1978) asset pricing model with incomplete information. In this economy, investors trade only assets which they " know about" . The model generates a closed-end fund discount or premium, depending on risk-aversion parameters. The fund share price reverts to the net asset value on open-ending of the fund. The discount/premium is a result of two economic forces: (1) the fund manager's objective is to maximize expected utility of her fee income rather than the welfare of fund shareholders. Mis-alignment of objectives of the fund manager and shareholders results in discount/premium, and (2) for given risk aversion parameters, diversification benefits to investors determine the size of the discount/premium. Pontiff (1996) documents a positive relation between discounts and unhedgeable risk. This evidence along with other findings leads Pontiff to conclude that discounts appear to be a result of mispricing. Our model provides an alternative interpretation on the positive relation found by Pontiff based on the economic forces depicted above.

Download or read book Liquidity and Asset Prices written by Yakov Amihud and published by Now Publishers Inc. This book was released on 2006 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.

Download or read book Portfolio Theory and Management written by H. Kent Baker and published by Oxford University Press, USA. This book was released on 2013-01-07 with total page 816 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio management is an ongoing process of constructing portfolios that balances an investor's objectives with the portfolio manager's expectations about the future. This dynamic process provides the payoff for investors. Portfolio management evaluates individual assets or investments by their contribution to the risk and return of an investor's portfolio rather than in isolation. This is called the portfolio perspective. Thus, by constructing a diversified portfolio, a portfolio manager can reduce risk for a given level of expected return, compared to investing in an individual asset or security. According to modern portfolio theory (MPT), investors who do not follow a portfolio perspective bear risk that is not rewarded with greater expected return. Portfolio diversification works best when financial markets are operating normally compared to periods of market turmoil such as the 2007-2008 financial crisis. During periods of turmoil, correlations tend to increase thus reducing the benefits of diversification. Portfolio management today emerges as a dynamic process, which continues to evolve at a rapid pace. The purpose of Portfolio Theory and Management is to take readers from the foundations of portfolio management with the contributions of financial pioneers up to the latest trends emerging within the context of special topics. The book includes discussions of portfolio theory and management both before and after the 2007-2008 financial crisis. This volume provides a critical reflection of what worked and what did not work viewed from the perspective of the recent financial crisis. Further, the book is not restricted to the U.S. market but takes a more global focus by highlighting cross-country differences and practices. This 30-chapter book consists of seven sections. These chapters are: (1) portfolio theory and asset pricing, (2) the investment policy statement and fiduciary duties, (3) asset allocation and portfolio construction, (4) risk management, (V) portfolio execution, monitoring, and rebalancing, (6) evaluating and reporting portfolio performance, and (7) special topics.

Download or read book IMF Staff Papers Volume 47 No 1 written by International Monetary Fund. Research Dept. and published by International Monetary Fund. This book was released on 2000-01-01 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses the origins of the pyramid schemes and the way the authorities handled them. The paper analyzes the economic effects of the pyramid schemes, concluding that despite the descent into anarchy triggered by the schemes’ collapse, their direct effects on the economy are difficult to specify and appear to have been limited. The paper also argues that prevention of pyramid schemes is better than cure and that government and international financial institutions should be vigilant in clamping down on frauds.