Costly Arbitrage: Evidence from Closed-End Funds

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ID: 302955
1996
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Abstract
Arbitrage costs lead to large deviations of prices from fundamentals. Using a sample of closed-end funds, I find that the market value of a fund is more likely to deviate from the value of its assets (1) for funds with portfolios that are difficult to replicate, (2) for funds that pay out smaller dividends, (3) for funds with lower market values, and (4) when interest rates are high. These factors are related to the magnitude of the deviation, as opposed to the direction (i.e., whether discount or premium), and explain a quarter of cross-sectional mispricing variation. These findings are consistent with noise trader models of asset pricing.
Reference Key
openalex_W2090386647 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Jeffrey Pontiff
Journal the quarterly journal of economics
Year 1996
DOI
10.2307/2946710
URL
https://doi.org/10.2307/2946710
Keywords Keywords not found

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