A recent strand of the finance literature explains deviations of closed-end fund prices from their net asset value (NAV) by assuming that a fraction of investors are irrational. These irrational investors are taken to be the small investors because in the US it is primarily small investors who hold closed-end funds. Contrary to the US evidence, however, most of the closed-end funds in Greece are subsidiaries of domestic banks. Hence, if the behaviour of Greek funds resembles that of US funds, as Research Fellow Gikas Hardouvelis and Emmanuel Tsiritakis suggest in Discussion Paper No. 1406, then new explanations have to be found for the puzzling deviation.

Their study suggests some parallels with the US experience: Greek closed-end funds also deviate substantially from their net asset values and show excessive volatility. High cross-sectional bivariate correlations between premia indicate that there seems to be a common factor driving the evolution of fund premia. These premia are negatively associated with subsequent fund returns, and positively related to subsequent NAV returns. There is a positive correlation between excess returns on the funds and the return on the overall stock market. Moreover, excess fund returns are not related to the parent bank returns, but to the component of the aggregate stock market return which is orthogonal to the parent bank return. The authors conclude that the eventual explanation of the puzzle must be universal and cannot be specific to the characteristics of the asset composition and ownership of US closed-end funds.

Greek Closed-End Fund Premia: Differences and Similarities with US Premia and Their Implications
Gikas A Hardouvelis and Emmanuel D Tsiritakis