Gemmill, Gordon and Thomas, D. C. (Dylan C.) (2002) Costly arbitrage and asset prices: evidence from closed-end funds. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.02-).

Preview

PDF WRAP_Gemmill_fwp02-09.pdf - Requires a PDF viewer. Download (557Kb)

Request Changes to record.

Abstract

If arbitrage is costly and noise traders are active, asset prices may deviate from fundamental values for long periods of time. We use a sample of 158 closed-end funds to show that noise-trader sentiment, as proxied by retail-investor flows, leads to fluctuations in the discount. Nevertheless, we reject the hypothesis that noise-trader risk is the cause of the long-run discount. Instead we find that funds which are more difficult to arbitrage have larger discounts, due to: (i) the censoring of the discount by the arbitrage bounds, and (ii) the freedom of managers to increase charges when arbitrage is costly.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Arbitrage -- Mathematical models, Accounting and price fluctuations, Assets (Accounting), Closed-end funds
Series Name:	Working papers (Warwick Business School. Financial Econometrics Research Centre)
Publisher:	Warwick Business School, Financial Econometrics Research Centre
Place of Publication:	Coventry
Official Date:	2002
Dates:	Date Event 2002 Published
Number:	No.02-
Number of Pages:	44
Institution:	University of Warwick
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access (Creative Commons)

Request changes or add full text files to a record

Repository staff actions (login required)

View Item

Downloads