An Empirical Analysis On China Closed-End Funds Discount

The closed-end fund discount means trading price of a closed-end fund is lower than the net asset value of the fund, which is a common phenomenon around the world. Many scholars has done a lot of research and put forward a number of important theories since 1960s, but none of them can fully explain this phenomenon. Compared with the developed companies, China's capital market is far from completed so that the closed-end fund discount phenomenon may have its own characteristics. Therefore the study of China's closed-end fund discount phenomenon can enrich and expand the existing theories.Based on existing research theories, this paper does empirical analysis of China's closed-end fund discount phenomenon considering the actual situation of China's stock market. At present, most of the existing researches are either in the framework of standard finance or in the framework of behavior finance. This paper summarizes major theories and their limitations within the above two frameworks, then analyses the applicability of the theories in China and finally establishes empirical models for statistical analysis. Different from most existing studies, this paper also pays particular attention to the possible stock market's effect on closed-end fund discount.The main conclusions are as follows:1. The volatility of the closed-end fund discount rate had turned smaller and the frequency of high discount rate decreased these years, which may imply that the investors had become more rational;2. The existing theories in the framework of standard finance could not make a full explanation of the closed-end fund discount phenomenon in China. Different fund was under the influence of different factors. As a whole, the discount rate had a negative correlation with the fund size and fund availability. The impact of stock market was significant if the model did not take consider of the time factor and it revealed that the discount rate was higher in a bull market rather than a bear market as a whole.3. The LST model in the framework of behavior finance also cannot explain the closed-end fund discount in China:though the discount rates of different closed-end funds were highly relevant, not all the new funds IPOs in a bull market. In addition, the discount rate contained both the future returns information and the future NAV information which is more inclined to support the traditional expectations theory rather than the LST model.