35 Pages Posted: 23 Feb 2006
Date Written: February 2006
Using monthly data from 1989 to 2001 for a sample of ten emerging market closed-end funds, we study the time-series relationship between fund discounts/premiums and future net asset value (NAV) and share price (SP) returns. Unlike previous studies, we find that discounts/premiums forecast both SP and NAV returns with the forecasting power of the latter being stronger. Additional tests show that the fund discounts/premiums contain information about future macroeconomic factors of their corresponding emerging markets. We also document a strong association between expectations of future macroeconomic conditions and the difference in SP and NAV returns. Our results provide support for a rational market segmentation explanation of the discounts/premiums in emerging market closed-end funds and they are not consistent with a straight forward investor sentiment explanation.
Keywords: Closed-end funds, Emerging markets, Capital market segmentation, Investor sentiment
JEL Classification: G15
Suggested Citation: Suggested Citation
Nishiotis, George and Makris, Andreas K., The Forecasting Power of Emerging Market Closed-end Fund Discounts and Capital Market Segmentation (February 2006). Available at SSRN: https://ssrn.com/abstract=883632 or http://dx.doi.org/10.2139/ssrn.883632