Three essays on closed-end country funds

Doseong Kim

doi:10.17918/00008217

In this dissertation, we investigate the pricing of country funds in the US market and the time-varying behavior of country-fund premiums by applying weekly data of 47 country funds. Essay 1 examines country-fund price behavior in relation to corresponding NAV, foreign stock index, and the US stock index. The significance test and specification test unambiguously conclude that applying the information of NAV in the error correction framework to predict the country-fund price movements appears to be more appropriate since this model contains not only the short-run dynamic impact, but also the long-run equilibrium value. Examining the impact of the Asia crisis, the estimated coefficients had more dramatic change during the turbulent period although the sign and qualitative results remain the same. In Essay 2, we propose a time-varying risk hypothesis that relates country-fund discounts to stock-market risk and exchange-rate risk. Using the conditional variance of returns as a measure of risk, we find significant evidence to support the time-varying risk hypothesis. In particular, country-fund premiums are negatively correlated with the expected variance of country-fund returns and positively related to that of NAV returns. Country-fund premiums also relate significantly to the volatility of foreign exchange returns in the majority of cases. On examining the impact of the Asian crisis, most country funds are traded with a larger discount, but premiums are found in most Asian country funds that were severely hit by the Asian crisis. In Essay 3, we investigate the pricing of country funds in the US market, employing various US and foreign market factors, such as stock market returns and volatility, fund premium, and foreign exchange return and volatility. The evidence suggests that the US and foreign stock-market return, one-period lagged fund premium, and changes in exchange rates play a significant role in determining country-fund prices. Also, conditional variances of the US and foreign market returns and foreign exchange returns have moderate power to explain the country-fund returns. Finally, empirical findings indicate that the Asian crisis has had a significant impact on the relationship between fund returns and suggested factors.

Three essays on closed-end country funds

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Three essays on closed-end country funds

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