Closed End Fund Performance on a Daily Basis: The Discovery of a New Anomaly

43 Pages Posted: 17 Oct 2006

See all articles by Ben S. Branch

Ben S. Branch

University of Massachusetts Amherst - Isenberg School of Management

Aixin (James) Ma

Oklahoma City University - Meinders School of Business

Jill Sawyer

University of Massachusetts Amherst

Date Written: September 6, 2006

Abstract

Herein we explore the relationships between the NAVs and market prices of closed end funds. We find the types of relationships that we expected. The market does react to the newly released NAV in the expected direction and the market does anticipate the changes in the NAV as expected. By far the most interesting relationship that we have uncovered, however, is the serendipitous find that the overnight and intraday returns of closed end funds are negatively auto correlated. This result is found for both the overall sample and all of the different sub samples that we tested. Our results are found in both univariate and multivariate tests. We believe the tendency for prices to move in opposite directions overnight and intraday is due to how the specialists choose to open their assigned stocks. This negative autocorrelation between intraday and overnight returns appears to us to be another example of an anomaly.

This set of findings raises several questions. First, are the specialists properly carrying out their assigned task of stabilizing the prices of their securities on the opening? Or are they exploiting their monopolistic position to the disadvantage of those public investors who enter market orders overnight? And are the NYSE specialists particularly inclined to exploit their positions? Second, does this negative autocorrelation occur in the markets for other types of securities? Or is it just an artifact of how closed end funds are traded? Third, is the relationship exploitable? That is, could one utilize the tendency of closed end fund shares to move over the day in the opposite direction from its prior overnight move, to devise a profitable trading rule? Or does the next trade after the opening remove the profit potential? We look forward to seeking further answers.

Keywords: closed end funds, anomaly, daily return, stock performance

JEL Classification: G00, G10, G14

Suggested Citation

Branch, Ben S. and Ma, Aixin and Sawyer, Jill, Closed End Fund Performance on a Daily Basis: The Discovery of a New Anomaly (September 6, 2006). Available at SSRN: https://ssrn.com/abstract=937973 or http://dx.doi.org/10.2139/ssrn.937973

Ben S. Branch (Contact Author)

University of Massachusetts Amherst - Isenberg School of Management ( email )

Room 201A
Amherst, MA 01003-4910
United States
413-545-5690 (Phone)
413-545-3858 (Fax)

Aixin Ma

Oklahoma City University - Meinders School of Business ( email )

2501 North Blackwelder
Oklahoma City, OK 73106-1493
United States
405-208-5827 (Phone)

Jill Sawyer

University of Massachusetts Amherst ( email )

Department of Operations and Information Managemen
Amherst, MA 01003
United States

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