DETERMINANTS OF THE CHINESE CLOSED-END FUND PREMIUM: FUND SIZE, VOLATILITY, MANAGERIAL ABILITY AND SUBSTITUTION EFFECT OF OPEN-END FUNDS IN THE PRE AND POST CRISIS PERIODS
TEO CHOON YONG, BENJAMIN
TEO CHOON YONG, BENJAMIN
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Abstract
In this paper we examine the determinants of the Chinese closed-end fund
premium. We find that premium is negatively related to NAV, age, liquidity, premium
volatility, managerial ability and the substitution effect of open-end funds, and
positively related to market and closed-end fund volatilities. The results suggest that
investors value low NAV and low liquidity closed-end funds, because they offer
greater upside potential given high market and fund volatilities. We also find that
premium has a concave relationship with fund size.
Results from pre and post financial crisis 2008 analyses suggest that investors
began to recognize the importance of managerial ability over unit NAV after the
crisis. Investor behaviour also changed post crisis, where the relationship between
premium and fund volatility changed from negative to positive from pre to post crisis.
This could be because Chinese funds became more attractive relative to the USA
and UK funds, as developed economies were more adversely impacted by the crisis.
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2014
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