What Drives Closed-End Fund Discounts? Evidence from COVID-19

44 Pages Posted: 1 Mar 2021 Last revised: 25 Jan 2023

See all articles by Liang Ma

Liang Ma

University of South Carolina - Darla Moore School of Business

Date Written: August 7, 2022

Abstract

I show that closed-end fund (CEF) discounts increased after the COVID-19 outbreak and examine potential channels using difference-in-differences (DiD) analysis. CEFs with higher retail ownership had a larger discount increase after COVID-19, suggesting the causal effect of individual investor sentiment on CEF discounts. This effect is stronger for CEFs more likely to be held by non-Republican investors, who became more pessimistic than Republican investors after COVID-19. The DiD results seem not driven by rational channels or income-driven fire sales. The findings shed light on the CEF discount puzzle and illustrate the effect of partisanship on asset prices through investor sentiment.

Keywords: Closed-End Funds, COVID-19, Mispricing, Sentiment, Partisanship

JEL Classification: G12, G14, G40

Suggested Citation

Ma, Liang, What Drives Closed-End Fund Discounts? Evidence from COVID-19 (August 7, 2022). Available at SSRN: https://ssrn.com/abstract=3793904 or http://dx.doi.org/10.2139/ssrn.3793904

Liang Ma (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States
803-777-6366 (Phone)

HOME PAGE: http://sites.google.com/site/liangmaweb/

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