Deviations from fundamental value and future closed-end country fund returns

Artikel

Purpose - This article examines whether deviations from fundamental value or closed-end country fund's discounts or premiums forecast future share price returns or net asset returns. Design/methodology/approach - The main empirical (econometric) tool is a vector autoregressive (VAR) model. The authors model share price returns and net asset returns as a function of their lagged values, the discounts or premiums, and a control variable for local market returns. The authors also conduct Dickey Fuller and Granger causality tests as well as impulse response functions. Findings - It was found that deviations from fundamental value do predict share price returns. This predictability is contrary to weak-form market efficiency. Premiums or discounts predict net asset returns but weakly. Originality/value - The findings point to the idea that the closed-end fund market is somewhat predictable and inefficient (in its weak form) since the market appears to be able to anticipate a fund's future returns using information contained in the premiums (or discounts). In particular, the market has the ability to anticipate future behaviour because growing premiums forecast declining share price returns for one or two periods ahead.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Journal of Economics, Finance and Administrative Science ; ISSN: 2218-0648 ; Volume: 26 ; Year: 2021 ; Issue: 52 ; Pages: 222-236 ; Bingley: Emerald Publishing Limited

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; International Financial Markets ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Behavioral Finance: General‡
• Subject: Closed-end fund ; Discount ; Premium ; Puzzle ; Vector autoregressive models

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Berggrun, Luis ; Cardona, Emilio ; Lizarzaburu, Edmundo
• Event: Veröffentlichung
• (who): Emerald Publishing Limited
• (where): Bingley
• (when): 2021

Further information

• DOI: doi:10.1108/JEFAS-04-2021-0035
• Handle: http://hdl.handle.net/10419/253820
• Last update: 10.03.2025, 11:44 AM CET