Excess Volatility and Closed-End Funds

Abstract:     
The average closed-end fund's return is shown to be 65% more volatile than its assets. Unlike variance-bound tests, this facilitates an excess volatility test that does not rely on strong assumptions about discount rates or dividend streams. This finding can not be attributed to non-synchronous trading, or distorted net asset values. Although largely idiosyncratic, 15% of the average fund's excess risk is explained by market risk, small firm risk, and risk that affects other closed-end funds. For discounted funds, excess risk is also related to the book-to-market risk.

JEL Classification: G12

working papers series