Closed-End Funds

61 Pages Posted: 25 Nov 2015 Last revised: 28 Aug 2016

David A. Lesmond

Tulane University - A.B. Freeman School of Business

George Nishiotis

University of Cyprus-School of Economics and Management- Department of Accounting and Finance

Date Written: August 25, 2016

Abstract

Recent work suggests that investor sentiment drives the behavior of closed-end fund premiums. We develop a microstructure model that links the observed closed-end fund premiums to the interplay between the bid-ask spread of the fund with that of the fund's holdings. Employing a battery of investor sentiment measures, we find inconsistent evidence in support of an investor sentiment hypothesis, but robust support for the liquidity based explanation in explaining the closed-end fund premium. The importance of the microstructure explanation extends to pricing of the closed-end funds whereby significant cross-sectional pricing ability for the bid-ask spreads is found, but no significant pricing ability for either investor sentiment or closed-end fund premiums.

Keywords: Closed-end funds, Bid-Ask Spread, Investor Sentiment

JEL Classification: J31

Suggested Citation

Lesmond, David A. and Nishiotis, George P., Closed-End Funds (August 25, 2016). Available at SSRN: https://ssrn.com/abstract=2695109 or http://dx.doi.org/10.2139/ssrn.2695109

David A. Lesmond (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
511 Goldring-Woldenberg Hall
New Orleans, LA 70118
United States
504-865-5665 (Phone)
504-865-6751 (Fax)

George P. Nishiotis

University of Cyprus-School of Economics and Management- Department of Accounting and Finance ( email )

1 University Avenue
P.O. Box 20537
Nicosia CY-1678
Cyprus
357 22893617 (Phone)
357 22895475 (Fax)

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