Investor Sentiment and the Closed-End Fund Puzzle: Out-of-Sample Evidence

38 Pages Posted: 14 Jun 2003

See all articles by John A. Doukas

John A. Doukas

Old Dominion University - Strome College of Business

Nikolaos T. Milonas

National and Kapodistrian University of Athens - Faculty of Economics; Cardiff University Business School

Multiple version iconThere are 2 versions of this paper

Date Written: December 24, 2002

Abstract

In this paper we examine the proposition that small investor sentiment, measured by the change in the discount/premium on closed-end funds, is an important factor in stock returns. We conduct an out-of-sample test of the investor sentiment hypothesis in a market environment that is more likely to be prone to investor sentiment than the U.S. We fail to provide supporting evidence of the claim of Lee, Shleifer, and Thaler (1991) that investor sentiment affects the risk of common stocks. Consistent with Elton, Gruber, and Busse (1998), who show that investor sentiment does not enter the return generating process, our tests do not detect investor sentiment in a capital market that is more susceptible to small investor sentiment. Our results provide additional support against the claim that investor sentiment represents an independent and systematic asset pricing risk.

Keywords: Closed-end-funds, discounts/premiums, investor sentiment, stock returns

JEL Classification: G12, G14

Suggested Citation

Doukas, John A. and Milonas, Nikolaos T., Investor Sentiment and the Closed-End Fund Puzzle: Out-of-Sample Evidence (December 24, 2002). Available at SSRN: https://ssrn.com/abstract=394960 or http://dx.doi.org/10.2139/ssrn.394960

John A. Doukas (Contact Author)

Old Dominion University - Strome College of Business ( email )

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Nikolaos T. Milonas

National and Kapodistrian University of Athens - Faculty of Economics ( email )

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GR-10559 Athens
Greece

Cardiff University Business School

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Cardiff, CF10 3EU
United Kingdom

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