Recent Turmoil in Emerging Markets and the Behavior of Country-Fund Discounts Renewing the Puzzle of the Pricing of Closed-End Mutual Funds

This paper argues that recent movements in closed-end emerging markets funds present a strong challenge to the leading explanations of the behavior of closed-end country fund prices. In particular, closed-end funds dedicated to Mexico and other Latin American stock markets developed large premia aft...

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Main Author: Kramer, Charles Frederick
Other Authors: Smith, T. Todd
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1995, 1995
Series:IMF Working Papers; Working Paper
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Summary:This paper argues that recent movements in closed-end emerging markets funds present a strong challenge to the leading explanations of the behavior of closed-end country fund prices. In particular, closed-end funds dedicated to Mexico and other Latin American stock markets developed large premia after the December 1994 devaluation of the Mexican peso and the subsequent financial crisis. The so-called "investor sentiment hypothesis" could explain these events only by suggesting that investors became very optimistic about emerging markets stocks, and especially Mexican stocks; this possibility seems unlikely given the facts surrounding the devaluation. We argue instead that a sensible explanation for recent dynamics of closed-end country funds is that investors in these funds are loss-averse, implying that they do not want to realize paper losses on their closed-end fund shares. This works to put a drag on the downward movement in closed-end fund prices
Physical Description:30 p.
ISBN:9781451848953
1451848951