Abstract
It is widely believed that Closed-End Fund (CEF) discounts are due to the relatively disproportionate large numbers of small investors compared to institutional investors trading in them. An asset that is mainly traded by small investors has additional risk due to the fear factor that is usually associated with incomplete information about the market conditions. According to the present sentiment theory, noisy traders, which are usually small investors, are the reason behind CEF discounts. To test this discount theory, a closer study of the CEF funds and their correlations to various market indicators is presented. A special attention is paid to the behavior of CEFs during the financial crisis. It is shown that CEFs, contrary to popular belief, are relatively safe with small β and high α in many cases. This partially explains why CEFs are still a good investment even if they are traded at a premium and our results show that the sentiment theory cannot explain the origin of the discount.
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
