Excess Volatility and Closed-End Funds
Boston College - Department of Finance
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: G12working papers series
Date posted: May 9, 1994
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