Efficient market theory claims that investors cannot have excessive profits in the capital market. Closed-end fund, one of the most important investment vehicles in capital market, has long been subjected to trading at a discount, which is known as"closed-end fund puzzle". Classical financial theory attempts to explain it in respect to cost, liquidation, market segmentation and tax. Behavioral finance developed a different approach and managed to open up a wider vision based on the hypothesis of investor sentiment.This paper tests the existence of investor sentiment in the closed-end fund discount behavior. Then the fundamental factors and investor sentiment factor were both in consideration in the closed-end fund discount. In the long run, investor sentiment plays a more important role than fundamentals in the discount. Then, with the help of positive and negative events, we testified the direct influence of investor sentiment, which is also the first to testify investor sentiment as sufficient condition of closed-end fund discount. At the end, in the way of questionnaire and interview, we gathered information regarding to investor sentiment from respondents for our research on the path of sentiment and the discount of closed-end fund in the long run.The result shows that investor sentiment is the necessary and sufficient condition of closed-end fund discount. Because investor sentiment of both the capital market or closed-end fund is systemic and then should be priced. Besides, immature investors in the one-level market pay too much attention to stock other than portfolio investment. Therefore, discount in the market lasted for eight years. The solution is to improve corporate management system and to build multi-level market. It is also necessary for the improvement of capital market and national economy. |