The Forecasting Power of Emerging Market Closed-end Fund Discounts and Capital Market Segmentation

35 Pages Posted: 23 Feb 2006  

George Nishiotis

University of Cyprus - Department of Accounting and Finance

Andreas K. Makris

PricewaterhouseCoopers

Date Written: February 2006

Abstract

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

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

George P. Nishiotis (Contact Author)

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

1 University Avenue
P.O. Box 20537
Nicosia CY-1678
Cyprus
357 22893617 (Phone)
357 22895475 (Fax)

Andreas K. Makris

PricewaterhouseCoopers ( email )

54 Gill Street
New Plymouth 4310
New Zealand

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