Noise Trading, Costly Arbitrage, and Asset Prices: Evidence from Closed-end Funds  

Oleh:

Gemmill, Gordon ; Thomas, Dylan

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 57 no. 6 (Dec. 2002), page 2571-2594.
Fulltext: p 2571.pdf (292.73KB)

Isi artikel

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 f lows, leads to f luctuations in the discount. Nevertheless, we reject the hypothesis that noisetrader 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: ~1! the censoring of the discount by the arbitrage bounds, and ~2! the freedom of managers to increase charges when arbitrage is costly.

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