Closed-End Fund Discounts as an Investor Sentiment Index
Possibly the earliest discussion of investor sentiment, albeit unnamed, occurred during the run-up in U.S. stocks in the spring and summer of 1929 when closed-end funds mostly sold at substantial premiums to their net asset value (see De Long and Shliefer (1991)). These early writers were involved in brokerage or portfolio management, and they were warning investors that paying premiums of 100% or more was to pay twice or more the market value for the fund’s assets. The writers were puzzled by the demand for closed-end funds and were quick to point out the superior performance that fund managers would have to achieve in order to justify the lofty premiums.
KeywordsSmall Firm Excess Return Institutional Ownership Investor Sentiment Noise Trader
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