Excess Volatility and Closed-End Funds
Posted: 9 May 1994
There are 2 versions of this paper
Date Written: April 1994
Abstract
The average closed-end fund's return is shown to be 65% more volatile than its assets. Unlike variance-bound tests, this facilitates an excess volatility test that does not rely on strong assumptions about discount rates or dividend streams. This finding can not be attributed to non-synchronous trading, or distorted net asset values. Although largely idiosyncratic, 15% of the average fund's excess risk is explained by market risk, small firm risk, and risk that affects other closed-end funds. For discounted funds, excess risk is also related to the book-to-market risk.
JEL Classification: G12
Suggested Citation: Suggested Citation