Excess Volatility and UK Investment Trusts

30 Pages Posted: 22 Sep 2005

See all articles by Sam Agyei-Ampomah

Sam Agyei-Ampomah

Cranfield University - School of Management

John Richard (Dick) Davies

University of Strathclyde - Department of Accounting and Finance

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Abstract

The issue of whether or not asset prices are more volatile than the underlying fundamentals is an empirical question with implications for market efficiency. Recent research suggests that the volatility of closed end fund returns in the USA is significantly higher than the returns on assets held by the funds. This has been attributed to noise trading as closed-end fund shares are predominantly held by individual investors. This study demonstrates that UK investment trust returns exhibit similar excess volatility in spite of the prevalence of institutional investors. However, big investment trusts in terms of market capitalisation show greater excess volatility than small trusts. Although most of the excess volatility appears to be idiosyncratic, investor sentiment index is the most important variable associated with residual returns.

Suggested Citation

Agyei-Ampomah, Sam and Davies, John Richard (Dick), Excess Volatility and UK Investment Trusts. Journal of Business Finance & Accounting, Vol. 32, No. 5-6, pp. 1033-1062, June 2005. Available at SSRN: https://ssrn.com/abstract=809686

Sam Agyei-Ampomah (Contact Author)

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom
+441234754375 (Phone)

HOME PAGE: http://www.som.cranfield.ac.uk/som/p19638/People/Faculty/Academic-Faculty-Listing-A-Z/Dr-Sam-Agyei-A

John Richard (Dick) Davies

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

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom

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