Market-Wide Shocks and UK Closed-End Funds: A Taxonomy of Overreaction
28 Pages Posted: 14 May 2004
Date Written: January 15, 2004
This paper investigates the short-term behaviour of closed-end funds following large price shocks for a panel of 63 UK-traded funds. Our findings suggest that for the eight market-wide shocks, significant overreaction occurs. The level of overreaction is unrelated to the size of the funds. Both the small and difficult-to-arbitrage fund groups take longer to absorb the shocks. This is in contrast with the large and easy-arbitrage groups. However, the small funds group shows less overreaction and faster reversals after filtering out the difficult-to-arbitrage funds. The speed of reversal thus appears to be determined principally by ease-of-arbitrage.
Keywords: Overreaction, Reversal, Closed-end funds, Discount, Net asset value
JEL Classification: G1, F3
Suggested Citation: Suggested Citation