Relationship between Stock price & NAV

Subject Areas : Journal of Investment Knowledge

Nasser Shams ¹ , Mahsa Pezeshki ² , Abolfazl Davoudabadi Davoudabadi ³

1 - Assistant Prof. of Amirkabir university
2 - M.A. in Financial Engineering of Science & Culture
3 - M.A. in Financial management of Shahid Beheshti

Received: 2013-04-06 Accepted : 2013-06-10 Published : 2013-06-10

Keywords: Closed End Funds, Net Asset Value, Stock discount,

Abstract :

Theoretically, the net asset value of closed end funds is considered as one of the most important indicators of their stock valuation. In practice, closed end fund stock is traded with discount or premium to their net asset value and trading with discount is more popular. The purpose of this research is studying the relation between the price and net asset value of investment companies. The data for this research is the price and net asset value of investment companies accepted in Tehran stock exchange for the period from 2002 to 2009 that were investigated by econometrics methods.  According to research results in short-term relationship, auto correlation in price series is clear. The reason is more affected by two restriction factors, "Tick Size" and "Base Volume". It is clear that in long-term relationship after 2004, investment companies stock price is 67% of their net asset value plus a constant and a variable amount which is depended on time (Trend). The variable amount of long-term equilibrium relationship in Tehran Stock Exchange has descending trend that shows increase in discount of stock price in recent years.  Considering the high correlation coefficient between different companies discount in the sample over time, it can be concluded that behavioral theories have played more important role in describing discount fluctuations in Tehran Stock Exchange.