Arbitrage, Noise-trader Risk, and the Cross Section of Closed-end Fund Returns

東京大学経済学研究科棟 4階 第5教室

Sean Masaki Flynn 氏
Assistant Professor of Economics, Vassar College (New York)

I find that despite active arbitrage activity, the discounts of individual closed-end funds are not driven to be consistent with their respective fundamentals. In addition, arbitrage portfolios created by sorting funds by discount level show excess returns not only for the three Fama and French (1992) risk factors but when a measure of average discount movements across all funds is included as well. Because the inclusion of this later variable soaks up volatility common to all funds, the observed inverse relationship between the magnitude of excess returns in the cross section and the ability of these variables to explain overall volatility leads me to suspect that fund-specific risk factors exist which, were they measurable, would justify what otherwise appear to be excess returns. I propose that fund-specific noise-trader risk of the type described by Black (1986) may be the missing risk factor.

備考: Microworkshop と共催

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