Research On The Discount And Premium Of Graded Funds And Investor Sentiment

Previous studies have demonstrated that the discount rate of closed-end funds is a good proxy for investor sentiment. However, the relatively slow development and small number of closed-end funds on the domestic market could make the discount rate not be able to accurately reflect the investor sentiment. Nowadays the share price of graded funds’ sub-fund often deviate significantly from net asset value as well. The premium indicator of graded funds may become valid supplement to investor sentiment indicators. This article tests its feasibility and studies the effect of premium on the stock market and its application.The article selects indicators representing the premium level based on the features of graded funds. Then, summarizing previous study on the discount of closed-end fund for reference, it compares the volatility of the B-share price and NAV, analyzes the correlation of premium indicators, which concludes that indicators selected are reasonable proxies for investor sentiment. On this basis, further research and analysis on the effect of premium rate on the stock market shows that the investor sentiment has a significant impact on the market return, which is a positive correlation, while negative correlation regard to current indicators. However, no significant forecast ability of premium indicator on future market return is found. The last part focuses on proposing investment strategies and briefly analyzing the feasibility.The Conclusions of this article will contribute to empirical research on stock market with better information on investor sentiment and will help investors make better investment decisions.