A Study On Investment Strategy Based On The Characteristics Of Closed-end Fund Discount

The closed-end fund discount means the phenomenon that the market price is lower than the net value of the fund, which exists in various securities markets all over the world. It is known as "closed-end fund discount puzzle", received wide attention of scholars. However, closed-end fund discount puzzle hasn’t been entirely explained today. Since CEF market of China entered the normalization period in1997, closed-end funds trade at a discount in a high state for a long time. This has become a hot issue between financial scholars of China.The study is the rate of the closed-end fund discount. This paper uses panel data from January1,2006to June30,2013of21closed-end funds, and uses empirical methods of statistical analysis and econometrics. Firstly, in order to studying the reasons for the closed-end fund discount, the paper chooses explanatory variable from the closed-end funds’ multiple angles fundamentals, market factors, noise factors and so on. Then, this paper texts the mean reversion of the closed-end fund discount. Finally, this paper designs investment strategies based on the characteristics of the closed-end fund discount, comparing the validity of investment strategies and comparing the merits of the investment strategy in a bear market and a bull market.The results showed that:the proportion of institutional investors, equity proportion of net assets, fund performance, fund manager turnover, the remaining period of fund and the rate of change of the CSI300are the six reasons of the closed-end fund discount. The concentration of investment and fund shares is not significantly correlated with the closed-end fund discount. Chinese closed-end fund market exist mean reversion of discounts. Contrarian strategy based on mean reversion characteristic is effective and able to obtain excess returns. In a bear market, contrarian strategy is effective regardless of the length of the term. In a bull market, using contrarian strategy is more effective in long-term investment, and income is unstable in short-term investments. Overall, using contrarian strategy is more effective in a bear market than in a bull market.