Time Varying Investment Barriers and Closed-End Country Fund Pricing

Abstract

We examine the effect of time-varying investment barriers on the pricing of UK closed-end country funds. We find that our direct measure of capital market segmentation is significantly negatively related to both country fund stock return and Net Asset Value (NAV) return of the fund, but there is no relation to the premium. Also we find some evidence of a positive relation for one of our indirect barriers (inflation variability) and price, NAV and premium. Overall our results support an information hypothesis rather than a diversification benefits hypothesis of the impact of investment barriers on closed-end fund pricing.

Keywords: Closed-end country funds, investment trusts, capital controls, segmentation, integration

JEL Classification: G14, G12