Pricing of national index funds |
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Authors: | Vihang R Errunza |
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Institution: | (1) Faculty of Management, McGill University, H3A 1G5 Montreal, Canada |
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Abstract: | This article investigates the pricing behavior of national index funds (NIFs). Under barriers to capital flows in an otherwise
perfect capital market, the familiar result of zero premium/discount obtains. The more realistic assumption of imperfect cross-border
arbitrage suggests that in a two country setting the NIFs will sell at a premium. In a multicountry framework, the investment
barriers will result in NIFs generally trading at a premium, although theoretically one cannot rule out a discount from net
asset value (NAV). A simple test supports the proposition that under investment barriers, NIFs should trade at a premium to
NAV after controlling for the average domestic closed-end fund discount. |
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Keywords: | national index funds premiums/discounts country funds closed-end funds |
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