The Research On The Relationship Between Liquidity And Closed-end Fund Discount

The closed-end fund discount is one of the most puzzled issues in financial field. Plenty of relevant demonstrations showed that most of the times, the closed-end funds were exchanged in discount. Many scholars try to explain this phenomenon from various aspects, generally there are two sorts: one is form traditional finance, and the other is form Behavioral Finance. But the theories based on traditional finance are inferior to those based on Behavioral Finance, which can not give a perfect explanation to the four angles of the discount. But as for the Behavioral Finance, especially the Theory of investor's Sentiment can give a brand-new answer to this question, which supposed that the sentiment of noise-traders is a main factor caused discount. Relative to other explanations, it can give a satisfactory solution.Some scholars also applied noise trader theory to the issue of liquidity, which is the core of the Microstructure of Financial Market. Based on their researches, they discovered the sentiment of noise traders is also a primary factor affecting market liquidity. The more optimistic these noise traders, the better the liquidity. So the target of this dissertation is to exploit the relationship between the discount and market liquidity. To be different from other documents researching on this aspect, the liquidity index used in this paper will be melted into noise traders.Based on DSSW model, this essay deduced a price impact coefficient which is the result of the change of price and the quantity of stock exchange, to present the liquidity risk, then gained the relationship model of price impact coefficient and the price. Due to the particularity of the model built in this paper, it is not practical to do empirical works using actual data. Therefore, computer simulation is adopted referring to Artificial Stock Market. As a result, the conclusion mentioned above is confirmed by this.