Abstract
Recent work suggests that investor sentiment drives the behavior of closed-end fund premiums. We develop a microstructure model that links the observed closed-end fund premiums to the interplay between the bid-ask spread of the fund with that of the fund's holdings. Employing a battery of investor sentiment measures, we find inconsistent evidence in support of an investor sentiment hypothesis, but robust support for the liquidity based explanation in explaining the closed-end fund premium. The importance of the microstructure explanation extends to pricing of the closed-end funds whereby significant cross-sectional pricing ability for the bid-ask spreads is found, but no significant pricing ability for either investor sentiment or closed-end fund premiums.
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
