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Investor Reaction to Salient News in Closed-End Country Funds

Peter Klibanoff, Owen Lamont and Thierry A. Wizman
The Journal of Finance
Vol. 53, No. 2 (Apr., 1998), pp. 673-699
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/117365
Page Count: 27
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Investor Reaction to Salient News in Closed-End Country Funds
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Abstract

We use panel data on prices and net asset values to test whether dramatic country-specific news affects the response of closed-end country fund prices to asset value. In a typical week, prices underreact to changes in fundamentals; the (short-run) elasticity of price with respect to asset value is significantly less than one. In weeks with news appearing on the front page of The New York Times, prices react much more; the elasticity of price with respect to asset value is closer to one. These results are consistent with the hypothesis that news events lead some investors to react more quickly.

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