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Abstract(s)
Using multivariate analysis and based on a theoretical framework that we call hybrid theory (which considers rational and behavioral explanations for the close-end investment funds discounts/premiums), we intend to test the validity of certain factors such as agency costs, dividend policy and liquidity (so-called rational factors), combined with investor sentiment and limits to arbitrage (behavioral factors) to explain the structure of closed-end funds discounts (premiums) in the US market. Note that, as far as we know, few empirical papers have tested the validity of this approach.
Based on a sample of 346 US closed-end funds, we present evidence that dividend policy (dividend yield), the portfolio composition (restricted assets) and turnover ratio, as well as the investor sentiment and replication costs (as arbitrage limits) are statistically significant variables by the multivariate regression analysis undertaken, which seems to support empirically the hybrid hypothesis.
This paper also intends, by stepwise discriminant analysis, to identify which of these explanatory factors of closed-end funds discounts (premiums) contribute most to discriminate between bond and equity funds. Results indicate that the dividend yield, management fee and replication costs (limits to arbitrage) are the main contributors to the discriminant function, with about 92% of the funds properly classified.
Description
Keywords
Closed-end funds discounts Behavioral theories Investor sentiment Rational factors Discriminant analysis
Citation
Monte, Ana Paula (2010). A multivariate analysis of rational and behavioral factors that may explain the existence of discounts (premiums) of closed-end investment funds. In First World Finance Conference – WFC2010. Viana do Castelo.