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Essays on closed -end country funds and investment trusts

Urbi Alain Garay, University of Massachusetts Amherst


The first chapter of the dissertation describes the two competing explanations that have been offered attempting to explain the puzzle. The proponents of the Efficient Market Hypothesis, argue that such apparent mispricing results from rational pricing in an efficient market where some frictions may be present, while critics of this hypothesis argue that such phenomenon is the result of noise traders in the market for CEF shares and rational traders in the market for the underlying stocks that comprise the Net Asset Value of the CEF (the Investor Sentiment Hypothesis). The second chapter examines the behavior of closed-end country funds and investment trusts discount/premiums following the Asian financial crisis of 1997–98. More specifically, we document and analyze the puzzling large premiums developed by country funds dedicated to Asian and other emerging stock markets after the crises erupted. We also determine that none of the existing hypothesis that attempt to explain the closed-end fund discount puzzle can account for the emergence and time-series behavior of such large premiums, and propose a new explanation which assumes that money and capital markets are partially segmented. We perform a number of time series techniques such as cointegration tests and error correction models to test our hypothesis. The third chapter studies whether increases in implied volatilities on national stock indices, a proxy for increases in risk premia, affect the prices, net asset values (NAVs), and premiums of closed-end country Rinds (CEFs) and investment trusts (ITs). We conclude that changes in implied volatilities on the S&P 500 (FTSE-100) are generally not significant explaining either country fund (investment trust) prices or country fund (investment trust) NAVs, whereas changes in domestic implied volatilities affect a large number of country fund prices and NAVs, but are generally not significant in the case of investment trusts.

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Recommended Citation

Garay, Urbi Alain, "Essays on closed -end country funds and investment trusts" (2000). Doctoral Dissertations Available from Proquest. AAI9960754.