The Research On Discounts Of Closed-end Found In China

According to Efficient Markets Hypothesis, investors of closed-end funds can't earn excess risk-adjusted returns which accord with CAPM. The diversity of profit in different closed-end funds is that their risk preferences are different. Consequently, the fundamental value of closed-end fund should be equal to the net asset value (NAV) per share. There is no phenomenon of deviations between closed-end funds and their NAV on long-term. However, a great deal of empirical research reveals that deviations between the fundamental value and NAV exist in financial markets. The standard financial theory can't satisfactorily explain this phenomenon, therefore, we call this phenomenon closed-end fund puzzles. But behavioral financial theory' explanation is satisfied compare to standard financial theory's. Thus, how to explain close-end fund puzzles has been a tool that is used for test which theory is close to reality.There are also close-end fund puzzles in China. This paper analyzes these puzzles in Chinese financial market by academic and empirical means. First, the paper reviews theories of explanation for reasons that cause the discounts of closed-end funds. At the same time, the paper cleans up the basal theory of behavioral finance. Next, according to situations of Chinese security market, from the point of view of theory itself, the paper analyzes reasons of the discounts of closed-end funds in China. The conclusion is that both investor sentiment theory of behavioral theory and managerial performance theory of standard financial theory adapt to explain the discounts in China. The emphasis of the paper is that empirical research these tow theories are applicable for the discounts in Chinese finance market or not. Since the special situation of china that insurance corporation isn't allowed to invest close-ed end funds before Mar. 2000, the paper analyzes the impact of investor sentiment theory' explanation by insurance corporation's capital entering closed-end funds. Furthermore, the paper set up a closed-end fund price model of investors' restructuring expectation. This model reveals the potential impact of closed-end funds market price by insurance corporations. The aim of this paper is that researching the discounts of closed-end funds is better than before, and also use for reference that behavioral finance explains other anomalies which aren't consistent with standard finance theory in Chinese financial market.