Deviations from fundamental value and future closed-end country fund returns


  • Luis Berggrun CESA Business School, Bogota, Colombia
  • Emilio Cardona Universidad de Los Andes, Bogota, Colombia
  • Edmundo Lizarzaburu Universidad ESAN, Perú


Closed-end fund, Discount, Premium, Puzzle, Vector autoregressive models


Purpose. This article examines whether deviations from fundamental value or closed-end country fund's discounts or premiums forecast future share price returns or net asset returns.

Design/methodology/approach. The main empirical (econometric) tool is a vector autoregressive (VAR) model. The authors model share price returns and net asset returns as a function of their lagged values, the discounts or premiums, and a control variable for local market returns. The authors also conduct Dickey Fuller and Granger causality tests as well as impulse response functions.

Findings. It was found that deviations from fundamental value do predict share price returns. This predictability is contrary to weak-form market efficiency. Premiums or discounts predict net asset returns but weakly.

Originality/value. The findings point to the idea that the closed-end fund market is somewhat predictable and inefficient (in its weak form) since the market appears to be able to anticipate a fund's future returns using information contained in the premiums (or discounts). In particular, the market has the ability to anticipate future behaviour because growing premiums forecast declining share price returns for one or two periods ahead.



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How to Cite

Berggrun, L., Cardona, E., & Lizarzaburu, E. (2021). Deviations from fundamental value and future closed-end country fund returns. Journal of Economics, Finance and Administrative Science, 26(52), 222–236. Retrieved from