Excess Volatility and Closed-End Funds


Posted: 26 Feb 1997

See all articles by Jeffrey Pontiff

Jeffrey Pontiff

Boston College - Department of Finance

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If investors are rational, the variance of closed-end mutual fund returns should equal the variance of the underlying securities in their portfolios. In fact, this paper shows that the average closed-end fund's monthly return is 64 percent more volatile than its assets. Unlike variance- bound tests, this facilitates an excess volatility test that does not rely on strong assumptions about discount rates or dividend streams. Although, largely idiosyncratic, 15 percent of the average fund's excess risk is explained by market risk, small firm risk, and risk that affects other closed-end funds.

JEL Classification: G11

Suggested Citation

Pontiff, Jeffrey, Excess Volatility and Closed-End Funds. AMERICAN ECONOMIC REVIEW. Available at SSRN: https://ssrn.com/abstract=8140

Jeffrey Pontiff (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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