Unraveling the Closed-End Country Fund Discount Puzzle

Abstract

The authors examine the behavior of closed-end country fund discounts. Their results indicate that the level of an equally weighted index of country fund discounts and returns can be partially explained by measures of investor sentiment as well as the slope of the Treasury yield curve. The authors’ results also suggest that different factors cause developed and emerging market closed-end fund discounts to change. Finally, they present evidence of mean reversion in country fund prices relative to net asset value when a fund is underpriced but find no evidence of mean reversion for overpriced funds.