A Study On Chinese Closed-end Fund Based On Behavioral Finance

Behavioral finance represents a revolution in financial theory, a revolution that has emerged among both academics and practitioners over the past decade or two. It is a genuine revolution, since it largely scraps the dominant paradigm, the expected utility optimization theory and the efficient markets hypothesis. Behavioral finance substitutes new constructs, new fundamental ideas. Since human psychology is basically the same everywhere, we would expect to see the most of the principles of behavioral finance that have been discovered in other countries would apply to China as well, if suitable account is made of the different institutional environment in China. Closed-end funds are mutual funds whose shares traded like a stock. This is of interest because forces of supply and demand determine the price of said stock. Oddly, the prices at which closed-end funds traded normally differ from their portfolio values-which are precisely determinable because closed-end funds are required to report the contents of their portfolios weekly. The fact that is named by "closed-end fund puzzle"has led to a behavioral finance literature. Although many characteristics of Chinese closed-end funds resemble those of the U.S. closed-end funds, investors and environment are different. This dissertation proceeds both behavioral finance and traditional finance, especially the former to understand the "closed-end fund puzzle"from the Chinese experience. This dissertation is composed of four chapters. Main contents of each chapter are as follows: Chapter One, Introduction. This chapter first introduces the theories and methods used in this dissertation. Chapter Two, The theories of Neoclassical Finance. This chapter introduces the Efficient Market Hypothesis. Chapter Three, The theories of Behavioral Finance. This chapter introduces the behavioral finance theories such as Prospect Theory, Herd Behavior, Noise Trade. Then the chapter puts forward an outlook to the prospects of the application of behavioral finance. Chapter Four, Study of the Puzzle of closed-end fund in China. The chapter makes a detailed demonstration analysis on the various factors that influence the closed-end fund discount. The Chinese security market is a new one, barely over ten years old, and its institutional structure has not remained static even over this time. Over this time period, the Chinese stock market has gone through a number of ups and downs that have attracted attention all over the world. These movements cannot be understood entirely through traditional financial theory. The chapter makes a descriptive statistical analysis and corresponding analysis on the phenomenon of the closed-end fund discount, and make an initial analysis and judgment of the factors that influence the Puzzle. Then the chapter interprets the behavioral finance on the "closed-end fund puzzle".