A Study On The Discount Of The Closed-end Fund In China

The closed-end fund discount puzzle, which means fund's trading price is lower than fundnet asset in most period of time, has been a popular issue in most countries' securities market,and has been perplexing the academic world for a long time. Compared to western countries, thediscount of closed-end fund in China's security market is much more serious. Therefore,in-depth study of the reason of this phenomenon has an important theoretical and practicalsignificance to the healthy development of the closed-end fund.In this paper, firstly we sort out the relevant theoretical and empirical papers in domesticand abroad, comparing the advantages and disadvantages of various theories. Then we makedescriptive statistical analysis on the discount of closed-end funds, and define some explanatoryvariables which may have grate influence on the discount combining existed theories andChina's market characteristics. Finally, we use a database from 2001 to 2006, so as to find therelationship between explanatory variables and the closed-end fund discount.The results of the empirical studies on the discount of closed-end fund in China show that:Firstly, the discount of Chinese closed-end funds is determined both by rational expectations andnoise trading, however, the early premium is due to the noise trading factors, and in the wholecycle, the emergence of discount and changes is caused by rational expectations; Secondly, themain reason for long-term discount of the closed-end fund is the changes in the securities marketindex; Thirdly, characteristics of the Fund companies has a small impact on the discount; Finally,the reform of division in ownership structure of shares has an negative correlation to thediscount.