Pricing of closed-end country funds: Effect of investor sentiment, market segmentation and local market factors

This thesis studies the pricing of the closed-end country funds and presents the causes of discounts/premiums on these country funds. The study examines the influence of investor sentiment, market segmentation, and market factors on the discounts/premiums. Previous studies have only looked at the pricing of few country funds. This study uses 47 country funds and extends the analysis to 19 regional funds. In addition, I conducted the tests at daily, weekly, monthly, quarterly, and annual frequency.; The market factors such as U.S. market return and local market return are significantly related to the discounts/premiums on the country funds. Exchange rate is negatively related to the discounts and premiums indicating that the depreciation of foreign currency with respect to U.S. dollar affects NAV more adversely than the price of the fund. This is consistent with the investor sentiment hypothesis. Moreover, the fund prices are more volatile than the NAV. This results extends to the regional funds. This is also consistent with the investor sentiment hypothesis.; The funds of emerging markets or markets that are highly segmented from the U.S. market sells on average at a higher premium (lower discount) than funds of developed markets or markets that are less segmented from the U.S. market. In addition, the issuance of new funds from the similar country lowers the premium on the existing fund. This is consistent with the market segmentation hypothesis.; Even though U.S. investor sentiment influences the prices of the funds, most of the funds from the developing countries are not cointegrated or weakly cointegrated with the U.S. market. This proves that the country funds from emerging markets are a good diversification tool for U.S. investors.