Dynamic behavior of United States closed-end country funds

Many empirical studies strongly demonstrate that investors can benefit from directly diversifying into foreign stock markets. In practice, however, U.S. investors may find it hard to invest directly in certain foreign markets due to various barriers to international capital flows. Then, closed-end country funds provide a channel for U.S. investors to get access to global investments, injecting their funds into a well-managed and diversified portfolio at minimal transaction costs.; The primary focus of this study is to investigate the return generating mechanism of closed-end country funds. Thus, there are several specific issues to be addressed. First is the investigation of whether or not country funds behave more like U.S. securities than their net asset values (NAV). The second specific issue is to examine responses of fund price returns and NAV returns to new information and unexpected events in local stock markets. Another relevant issue to be examined relates to the respective risk factors associated with fund price returns and NAV returns. Finally, this study will examine whether the dynamics of fund price returns and NAV returns behave differently in emerging markets than in developed markets, and whether the relationships change during financial market crisis periods.; The findings of this study have several implications. First, investors and portfolio managers should benefit from a better understanding of emerging markets assets as well as developed markets assets as represented by country funds. This study should provide investors assistance in making informed global investment decisions regarding asset allocation and diversification benefits. Second, the findings should benefit policymakers by adding to an understanding of the causal relation between fund price returns and NAV returns and associated volatility effects when they attempt to effectively prevent international equity investments from impacting equity market returns and market volatility. Finally, the comparison of emerging markets with developed markets should benefit both investors and policymakers. The analysis of dynamics of fund price returns and NAV returns as well as patterns of fund discounts/premiums before, during, and after financial crisis periods should be useful to shed light on the differential response of investors to varying market conditions.