Determining empirically behavioral and fundamental factors of discounts on closed end funds

Recent studies provide evidence that investors participating in the financial markets, decide for their actions using heuristics, according to their feelings and reacting to noise. In this paper, we extract two factors related to the variability of Premium/Discount (P/D): a behavioral and a fundamental. In our opinion Closed-End Funds represent a market where investor sentiment is one key reason for its existence. It seems that the structure of the closed end funds call for the existence of a discount. We provide evidence that using both factors we can achieve a better understanding of discounts as theories and the Closed End Funds Puzzle support it. We believe that one basic reason for that development is the fact that the CEFs being listed companies adds a second component of risk to the market risk that any investor undertakes by investing in a well-diversified portfolio.