European closed-end fund discounts: effect of Covid-19

Abstract

This thesis analyzes behavior of Closed-end fund discounts (CEF) under the novel circumstances of the global pandemic that crushed the financial markets starting from early 2020. As literature argues CEF discounts to be affected and explained by the investor sentiment, I expect discounts display the sentiment shifts in the market. Using the CEFs trading in European Exchange Markets, for the period of 2017-2021, I apply linear regression, and found that discounts significantly increase with risk factor (beta) and transaction costs proxy and decrease with dividend yield, turnover, size of the fund, and market returns including House Price Index, controlling for country and fund portfolio asset class focus fixed effects. Results of regression models indicate that CEF discounts widen after the first cases confirmed in the country, as Covid-19 pandemic create a negative shock on investor sentiment. The optimism in the market after the administration of vaccination started is also reflected through CEF discounts as they shrink with vaccination effect. Moreover, I find that new cases and new deaths of Covid-19 are significant predictors for CEF discounts, implying that investors are affected by the main Covid-19 related publicly available data.