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Investor Reaction to Salient News in Closed-End Country Funds / Peter Klibanoff, Owen Lamont, Thierry A. Wizman.
- Format:
- Book
- Author/Creator:
- Klibanoff, Peter.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w5588.
- NBER working paper series no. w5588
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1996.
- Summary:
- We provide a model of closed-end fund pricing which includes investors who do not form expectations correctly and allows for salient country-specific news to affect this expectation formation process. We use panel data on prices and net asset values of closed- end country funds to examine investor reaction to news that affects fundamentals, and measure the response of the idiosyncratic change in fund prices to the idiosyncratic change in fund asset values. In a typical week, US prices underreact to changes in foreign fundamentals; the (short-run) elasticity of price with respect to asset value is significantly less than one. In weeks with major news (relevant to the specific country) appearing on the front page of The New York Times, prices react much more to fundamentals; the elasticity of price with respect to asset value is closer to one. These results are roughly consistent with the hypothesis that major news events lead some investors who normally lag behind in updating their expectations to temporarily react more quickly.
- Notes:
- Print version record
- May 1996.
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