Evidence on the Mean-Reverting Tendencies of Closed-End Fund Discounts

Posted: 21 Jul 2003  

Dominic Gasbarro

Murdoch University

Richard David Johnson

Colorado State University

J. Kenton Zumwalt

Colorado State University, Fort Collins - Department of Finance & Real Estate

Abstract

Closed-end fund (CEF) discounts vary widely over time due to changes in share price, net asset value (NAV), or both. Prior studies suggest discounts are mean reverting. We examine the mean-reversion issue by employing cointegration procedures. Specifically, we identify bond and equity CEFs that exhibit stationary time-series properties and find statistically significant error correction terms that quantify the speed of mean reversion. The results indicate that mean reversion is caused by changes in both share price and NAVs. However, CEFs can only provide excess returns when the discount narrows due to share price increases.

Suggested Citation

Gasbarro, Dominic and Johnson, Richard David and Zumwalt, J. Kenton, Evidence on the Mean-Reverting Tendencies of Closed-End Fund Discounts. Financial Review, Vol. 38, No. 2, May 2003. Available at SSRN: https://ssrn.com/abstract=395888

Dominic Gasbarro (Contact Author)

Murdoch University ( email )

South Street
Murdoch 6150, Western Australia
Australia

Richard David Johnson

Colorado State University ( email )

Fort Collins, CO 80523
United States

J. Kenton Zumwalt

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States

Paper statistics

Abstract Views
890