TY  - JOUR
AU  - Klibanoff,Peter
AU  - Lamont,Owen
AU  - Wizman,Thierry A.
TI  - Investor Reaction to Salient News in Closed-End Country Funds
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5588
PY  - 1996
Y2  - May 1996
UR  - http://www.nber.org/papers/w5588
L1  - http://www.nber.org/papers/w5588.pdf
N1  - Author contact info:
Owen Lamont
Department of Economics
Harvard University
Cambridge MA 02138
E-Mail: owen.lamont@yale.edu
AB  - We provide a model of closed-end fund pricing which includes investors who do not form expectations correctly and allows for salient country-specific news to affect this expectation formation process.  We use panel data on prices and net asset values of closed- end country funds to examine investor reaction to news that affects fundamentals, and measure the response of the idiosyncratic change in fund prices to the idiosyncratic change in fund asset values.  In a typical week, US prices underreact to changes in foreign fundamentals; the (short-run) elasticity of price with respect to asset value is significantly less than one.  In weeks with major news (relevant to the specific country) appearing on the front page of The New York Times, prices react much more to fundamentals; the elasticity of price with respect to asset value is closer to one.  These results are roughly consistent with the hypothesis that major news events lead some investors who normally lag behind in updating their expectations to temporarily react more quickly.
ER  -