Empirical Study On Discounts Of Closed-End Funds In China Market

This paper provides a comprehensive analysis to investigate the determinants of the closed-end fund discount,using information obtained from CSMAR Database, quarterly portfolio announcement and annual reports.In particular,we focuses on the diversification level of closed-end funds as the investor clienteles for closed-end funds in Mainland China are different from other markets.Empirical result indicates that the discounts of closed-end funds in China market are strongly and negatively related to portfolio concentration as measured by the number of stocks in the fund or Herfindahl Index,even after controlling for time trend and fund characteristics. Applying Herfindahl Index to measure the concentration on stocks,we find the higher the concentration on stocks,the better the funds perform,which explains the negative relationship between discounts and portfolio concentration.We also find the discount decreases with the dividend payout and turnover,suggesting that investors are willing to pay a higher price for a fund that pays more dividends and has higher turnover.