The Design And Pricing Of Country Funds Under Market Segmentation PDF Download

In this thesis we investigate the relation between UK closed-end country fund pricing and measures of illiquidity, sentiment and segmentation. First, we examine whether the UK closed-end country fund premium is related to the illiquidity of the UK fund or the illiquidity of the country in which the fund invests. We also consider whether emerging market country funds behave differently in terms of their premium and illiquidity to developed market country funds, and in particular whether they offer more stability during the period of the recent financial crisis. Overall, we find country illiquidity plays a significant role in the premium of emerging market funds. However, in developed market funds country illiquidity is not significant. Fund illiquidity, in contrast, is significant for developed market funds but not for emerging market funds. Second, we analyse the effect of sentiment on the pricing of UK closed-end country funds between 1992 and 2009. We find that country consumer sentiment is significantly negatively related to the share price and NAV (net asset value) return over different time horizons. We also find that UK consumer sentiment is significantly negatively related to the closed-end fund premium. The results suggest that both institutional investors and so called 'discount traders' influence country fund pricing. Third, we examine the effect of time-varying direct investment barriers on the pricing of UK closed-end country funds in emerging markets. We focus on the post-liberalisation period (1993-2009) and analyse the relation between time varying measures of direct and indirect market segmentation. We find that the direct measures of capital market segmentation are significantly negatively related to both the share price return and the return on the NAV of UK closed-end country funds in emerging markets. We also find, however, that direct investment barriers have an insignificant effect on the premium.