The Dynamic Behavior of Closed-End Funds and its Implications for Pricing, Forecasting and Trading

Tuebinger Discussion Paper No. 189

33 Pages Posted: 28 Sep 2000

See all articles by B. Philipp Kellerhals

B. Philipp Kellerhals

University of Tuebingen - Department of Business Administration; Deutscher Investment-Trust

Rainer Schoebel

University of Tuebingen - Faculty of Economics and Social Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: June 2000

Abstract

Closed-end funds (CEFs) show a distinctive feature in comparison to mutual funds: The market value determined on organized exchanges dynamically differs over time from the reported net asset value by a discount. This predominant capital market anomaly motivates our valuation model to price CEFs. We derive a stochastic pricing model that captures both the price risk of the funds as well as their risk associated with altering discounts. Implementing this theoretical model on a sample of emerging market closed-end funds we are able to infer insights into two potential applications for investors. First, we test the forecasting power of the pricing model to predict CEF market prices. Second, based on information on the premia we implement portfolio trading strategies using filter rules. The results on these suggested applications indicate that our pricing model generates valuable investment information.

JEL Classification: G12, G15

Suggested Citation

Kellerhals, B. Philipp and Schoebel, Rainer, The Dynamic Behavior of Closed-End Funds and its Implications for Pricing, Forecasting and Trading (June 2000). Tuebinger Discussion Paper No. 189. Available at SSRN: https://ssrn.com/abstract=239290 or http://dx.doi.org/10.2139/ssrn.239290

B. Philipp Kellerhals

University of Tuebingen - Department of Business Administration ( email )

Mohlstrasse 36
Tuebingen, D-72074
Germany
+49-7071-2977088 (Phone)
+49-7071-550622 (Fax)

Deutscher Investment-Trust ( email )

Portfolio Management Quantitative Products
Mainzer Landstrasse 11-13
60329 Frankfurt am Main
Germany
+49 (0) 69 263 15359 (Phone)
+49 (0) 69 263 14947 (Fax)

Rainer Schoebel (Contact Author)

University of Tuebingen - Faculty of Economics and Social Sciences ( email )

Mohlstrasse 36
D-72074 Tuebingen
Germany
+49 7071 2977088 (Phone)

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