Swedish Investment Companies and Behavioral Determinants of the Relative Valuation to NAV

Abstract: The discount to Net Asset Value (NAV) in Swedish investment companies is a phenomenon that has been present for decades. This study aims to explain part of the discount valuation without taking firm-specific characteristics into consideration. Instead, we use several regression models where only market-wide behavioral arguments are used. Specifically, we investigate whether noise trader risk and noise trader sentiment can explain the discount to NAV in Swedish investment companies. Our findings show that noise traders do in fact contribute to the relative valuation to NAV. We find evidence that when noise traders are enthusiastic the discount decreases and when noise traders are pessimistic the discounts widen.