Investigating the Role of Illiquidity in Explaining the UK Closed-End Country Fund Discount

37 Pages Posted: 5 Nov 2012  

John Richard (Dick) Davies

University of Strathclyde - Department of Accounting and Finance

Mary Fletcher

University of the West of Scotland; University of Strathclyde - Department of Accounting and Finance

Andrew P. Marshall

University of Strathclyde - Strathclyde Business School

Date Written: June 6, 2012

Abstract

In this paper we examine whether the UK closed-end country fund discounts are related to the illiquidity of the UK fund or the illiquidity of the country the fund invests in. We also consider whether emerging market country funds behave differently in terms of their discount and illiquidity to developed market country funds, and in particular whether they offer more stability during the period of the recent financial crisis. We find country illiquidity plays a significant role in the discount of emerging market funds. However, in developed market funds country illiquidity is not significant. Fund illiquidity, in contrast, is significant for developed market funds but not for emerging market funds. We find that investor sentiment is significant in the discount of both developed and emerging market funds. The recent financial crisis has had a widespread effect on the discount and illiquidity across both developed and emerging markets, but emerging market funds seem to have recovered to pre-crisis levels more quickly than funds investing in developed markets.

Keywords: Closed-end country funds, investment trusts, illiquidity, sentiment

JEL Classification: G14, G12

Suggested Citation

Davies, John Richard (Dick) and Fletcher, Mary and Marshall, Andrew P., Investigating the Role of Illiquidity in Explaining the UK Closed-End Country Fund Discount (June 6, 2012). 29th International Conference of the French Finance Association (AFFI) 2012. Available at SSRN: https://ssrn.com/abstract=2084121 or http://dx.doi.org/10.2139/ssrn.2084121

John Richard (Dick) Davies

University of Strathclyde - Department of Accounting and Finance ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom

Mary Fletcher (Contact Author)

University of the West of Scotland ( email )

A734 Almada Building
Almada Street
Hamilton, Scotland ML3 0JB
United Kingdom
01698 283100 x8272 (Phone)

University of Strathclyde - Department of Accounting and Finance ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom

Andrew P. Marshall

University of Strathclyde - Strathclyde Business School ( email )

100 Cathedral Street
Glasgow G4 0LN
United Kingdom
44 0141 548 3894 (Phone)

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