China Closed-end Fund Discounts Study

On the premise of Efficient Markets Hypothesis, investors of close-end funds can't earn excess risk-adjusted returns according to CAPM. The diversity of profit in different close-end funds is that their risk preferences are different. Consequently, the fundamental value of close-end funds should be equal to the net asset value (NAV) per share. However, it is proved that the prices of close-end funds usually deviate substantially from NAV. Some time close-end funds are traded at a premium to NAV, but they are more often traded at a discount to NAV. It is considered as one of the most pondered-over problems in the financial field.Starting from 1998, the close-end funds have grown for more than eight years. In April 1998, the first two close-end funds, Fund Kaiyuan and Fund Jintai, attracted millions of investors in the early period of fund trade and the market prices of them enjoyed very high premium, even exceeded one hundred percent. However, in the process of vigorous growth of close-end funds, it has appeared a kind of phenomenon calling for serious consideration. That is the discount in market prices prevailed in fund trade, just like many western countries. At present, almost all the close-end funds in China suffer from severe discount in market prices, averaging over 30% in discount rate. Under this condition, it is more and more important and necessary to do research on the price discount of close-end funds in China.The main purpose of this thesis is to explore the characteristics and causes of price discount in the trade of close-end funds in our country, as well as some main factors affecting the high discount rate. Furthermore, the thesis proposes a number of countermeasures in a hope to guide people's investment strategy, decrease the discount level and promote the...