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Does Sentiment Explain Closed-End Fund Discounts? Evidence from Bond Funds

Author

Listed:
  • Abraham, Abraham
  • Elan, Don
  • Marcus, Alan J

Abstract

This paper documents that discounts and premia on closed-end bond funds exhibit the same sensitivity to broad market returns as stock fund discounts. Despite this, stock funds sell on average at discounts from net asset value while bond funds sell at small premia. This pattern calls into question the conclusion that the average level of the discount rate can be rationalized by appealing to the systematic nature of discount risk. These results indicate that appeals to investor sentiment, which have been hypothesized as a source of fund discounts, do not fully resolve the puzzle of closed-end fund discounts. Copyright 1993 by MIT Press.

Suggested Citation

  • Abraham, Abraham & Elan, Don & Marcus, Alan J, 1993. "Does Sentiment Explain Closed-End Fund Discounts? Evidence from Bond Funds," The Financial Review, Eastern Finance Association, vol. 28(4), pages 607-616, November.
    • Handle: RePEc:bla:finrev:v:28:y:1993:i:4:p:607-16
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    Citations

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    Cited by:

    1. Seth Anderson & T. Randolph Beard & Hyeongwoo Kim & Liliana V. Stern, 2016. "The Short-Run Pricing Behavior of Closed-End Funds: Bond vs. Equity Funds," Journal of Financial Services Research, Springer;Western Finance Association, vol. 50(3), pages 363-386, December.
    2. Delcoure, Natalya & Zhong, Maosen, 2007. "On the premiums of iShares," Journal of Empirical Finance, Elsevier, vol. 14(2), pages 168-195, March.
    3. Durmaz, Nazif & Kim, Hyeongwoo & Lee, Hyejin & Sun, Yanfei, 2023. "Trend Breaks and the Persistence of Closed-End Mutual Fund Discounts," MPRA Paper 117789, University Library of Munich, Germany.
    4. Severn, Alan K., 1998. "Closed-end funds and sentiment risk," Review of Financial Economics, Elsevier, vol. 7(1), pages 103-119.
    5. Stylianos X. Koufadakis, 2016. "Mispricing Explanations of Closed-End Funds: A Survey Review," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 66(1-2), pages 108-135, January-J.
    6. Gabriel Frahm & Alexander Jonen & Rainer Schüssler, 2019. "The Fundamental Theorems Of Asset Pricing And The Closed-End Fund Puzzle," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(05), pages 1-31, August.
    7. repec:mth:ijafr8:v:9:y:2019:i:1:p:74-88 is not listed on IDEAS
    8. Ahmed Salhin & Mo Sherif & Edward Jones, 2016. "Investor Sentiment and Sector Returns," CFI Discussion Papers 1602, Centre for Finance and Investment, Heriot Watt University.
    9. Stylianos X. Koufadakis, 2015. "Asymmetries on Closed End Country Funds Premium and Monetary Policy Announcements: An Approach Trough the Perspective of Foreign Countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 65(3-4), pages 29-65, july-Dece.
    10. Nazif Durmaz & Hyeongwoo Kim & Hyejin Lee & Yanfei Sun, 2023. "Trend Breaks and the Persistence of Closed-End Fund Discounts," Auburn Economics Working Paper Series auwp2023-08, Department of Economics, Auburn University.
    11. Alan K. Severn, 1998. "Closed‐end funds and sentiment risk," Review of Financial Economics, John Wiley & Sons, vol. 7(1), pages 103-119.
    12. Robert Chirinko & Hisham Foad, 2006. "Noise vs. News in Equity Returns," CESifo Working Paper Series 1812, CESifo.
    13. Dominic Gasbarro & Richard D. Johnson & J. Kenton Zumwalt, 2003. "Evidence on the Mean‐Reverting Tendencies of Closed‐End Fund Discounts," The Financial Review, Eastern Finance Association, vol. 38(2), pages 273-291, May.

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