Valuation of closed-end country funds.

This thesis presents a valuation framework for the premiums and discounts of closed-end country funds. Previous studies focused on domestic closed-end funds, and have usually conducted annual cross-section regressions on levels of premiums and discounts. In this study, however, I look into the specific phenomenon of the coexistence of premiums and discounts on country funds, and try to explain the puzzle at all frequencies including weekly, monthly, quarterly, and annual observations. Market-level factors including U.S. and foreign market returns, and exchange rate changes are found to be the most significant variables to explain weekly and monthly changes in premiums and discounts. While U.S. market returns are positively related to the premium and discount change, local market return coefficient estimates are both significantly positive and negative. However, changes in U.S. domestic closed-end fund discount index are not significantly related to changes in country fund premiums and discounts. The net capital inflows into foreign countries, which proxy for informed foreign investors' sentiment toward the local market, are negatively related to the premium change in country funds, consistent with the investment sentiment hypothesis. The net capital inflow into the U.S., a proxy for informed foreign investors' sentiment toward the U.S. market, positively affect fund premiums, also consistent with the hypothesis. The annual regression coefficient estimate associated with past performance is positively related to fund premiums. However, we have mixed quarterly evidence on the performance, expenses and tax liability hypotheses. The coefficient estimates of other traditional variables are found to be consistent with the hypotheses. The investment restriction and country-type dummies are also consistent with the hypothesized coefficient signs. Based on the most significant parameter estimates, higher transaction costs in foreign markets and lower transaction costs in the U.S. market decrease premiums. For the supply side effect from subsequent fund IPOs, the first subsequent fund increases premium, but the second and/or third subsequent fund decreases premium. This result may provide some fads-, diversification gains- and/or market integration-related evidence.PhDBusiness AdministrationUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/103245/1/9308356.pdfDescription of 9308356.pdf : Restricted to UM users only