Abnormal Returns in Closed-End Funds: A study on Industrivärden

Abstract: With a starting point in previous research on the Closed-End Fund Puzzle we look at data on Industrivärden’s portfolio and stock from 1996 to 2009. We find that an investment in Industrivärden has produced annualized excess returns of 3.31 percent above the returns of its holdings for the period 1996 to 2009. We cannot explain these excess returns with a higher systematic risk factor in Industrivärden, and we therefore argue that they are abnormal from the viewpoint of classical financial theory. Further, we investigate whether behavioral finance and agency theory can provide a framework for understanding the discount in a sphere-company like Industrivärden. We argue that the heterogeneity of Industrivärden’s investor base is a major causal factor for the existence of a NAV-discount and that it might not be seen as an anomaly in light of behavioral finance theory.