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Rev Fin 1995; 8:879-918
© 1995 the Society for Financial Studies

Article

Closed-end country funds and U.S. market sentiment

JN Bodurtha, Jr1, D-S Kim2 and CMC Lee3
1 School of Business Administration, University of Michigan, Ann Arbor, MI 48109-1234, USA
2 Chung-Ang University
3 University of Michigan, Michigan, USA

Abstract

Closed-end country funds can trade at large premiums and discounts from their foreign asset values (NAVs). Investigating this anomaly, we find that individual fund premiums move together, primarily because of the comovement of their stock prices with the U.S. market. Moreover, an index of country fund premiums differentiates size-ranked U.S. portfolio returns and forecasts country fund stock returns. These findings suggest that international equity prices are affected by local risk. In particular, we show that country fund premium movements reflect a U.S.-specific risk, which may be interpreted as U.S. market sentiment.


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