Mean-reversion in closed-end fund discount: evidence from half-life
Abstract:This article examines the mean-reversion properties of the discount on UK and US closed-end funds. While the discounts are tested I(1), strong statistical evidence of mean-reversion is ascertained by bias-corrected bootstrap half-life estimates. The estimates also indicate that equity-based funds converge to the steady-state level faster than fixed income funds. In addition, although an equilibrium pricing condition postulates an inverse relation between half-life and the discount size, correlation estimates fail to show strong support for the relation.
Document Type: Research Article
Publication date: 2013-11-01