Investor Sentiment and the Closed-End Fund Puzzle: Out-of-Sample Evidence
38 Pages Posted: 14 Jun 2003
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Investor Sentiment and the Closed-End Fund Puzzle: Out-of-Sample Evidence
Investor Sentiment and the Closed-End Fund Puzzle: Out-of-Sample Evidence
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: Suggested Citation
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