The gloomy mists of the 1960s: pricing of investment trust shares without data on net asset value

Abstract

The paper considers the pricing of investment trust shares in the 1960s when data on net asset value were not available on a real time basis, but viewable only infrequently on the basis of annual company reports, and when the industry itself was in rapid transition from an old fashioned industry to the modern industry of today. A significant relationship is found between changes in both investment trust yields and retention ratios and subsequent changes in the ex-post observable discount. The suggestion is that as yields rise the fixed management charge erodes a smaller proportion of the trust's income. The more than proportionate rise in the share's price then shows up as a smaller discount.