China Closed-end Fund Discount And Investment Strategy Research

Closed-end fund is one kind of mutual fund.Compared with open-end fund,closed-end fund has many unique characteristics:it could invest in assets that provided limited liquidity,its unchangeable scale help to stabilize the stock market.Besides,the investor could gain not only from the increase of the NAV but also from the fluctuation of its trading price.However,since all closed-end funds are trading highly discounted at market,the issue of new fund is nearly ceased in China.The discount of closed-end fund means its trading price is lower than the NAV.It has been a very pondered-over problem in the financial field for a long time,called it "Puzzle of the closed-end fund discount".Firstly,The paper analyzed the difference about the provisions between domestic and overseas closed-end fund,and discovered the remarkable characteristics of domestic closed-end fund different from the overseas counterpart.Thus explaining why Chinese closed-end fund discount rate always maintain at a relatively high level.Secondly,the paper selected some factors that may have influence on closed-end fund discount in China to establish a multi-factor model.We used Panel-data method to estimate the parameter in the model.As a result, we found that fund size,growth of NAV,term to maturity and investors structure have significant influence on closed-end fund discount.Thirdly,the paper tried to test the investor sentiment theory in the market.We researched on the relationship between the discount rate and stock index and got the conclusion that the atmosphere of the underlying market have great influence on the degree of the discount rate.Finally,the paper designed two investment strategies based on the characteristics of discount rate.Both strategy could offer remarkable profits.The fluctuation strategy could offer absolute return between 1.36%and 2.53%per month.The regression strategy could offer excess return between 4.21%and 18.07%per year compared with similar open-end funds.