Christos Alexakis, Ph.D., Economics, University of Piraeus, 80 Karaoli & Dimitriou Str, Piraeus, 18534, Greece and Emmanouil Mavrakis, Ph.D., Candidate, Finance and Insurance, Technological Educational Institute of Crete, Fournia-Lakonion, P.O. Box 128, Agios Nikolaos, Crete, 72100, Greece.
Employing cointegration analysis we investigate the possible effects of changes in investor sentiment on the mean-reverting properties of the discount of closed-end funds (CEFs) trading in NYSE. The examined data contains a boom and a bust phase followed by a mild bullish period. Following existing evidence suggesting that the behaviour of CEFs’ discount is a matter of behavioural finance, we show that both investors’ optimism and pessimism may affect the mean-reversion features of CEFs’ discount. In addition, moderate market performance, characterised by cointegration between the share prices of CEFs and their net asset value gives the opportunity to achieve abnormal returns through exploitation of short run discount deviations from its mean value.