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Mean-reversion in closed-end fund discount: evidence from half-life

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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.

Keywords: C22; G11; closed-end funds discount; half-life; high-density region; mean-reversion

Document Type: Research Article

DOI: https://doi.org/10.1080/00036846.2013.791019

Affiliations: 1: Department of Accounting and Finance, Monash University, Clayton, Australia 2: School of Business Administration, Kyungpook National University, Daegu, Republic of Korea

Publication date: 2013-11-01

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