Do Turkish Spiders Confuse Bulls And Bears?: The Case of Dow Jones Istanbul 20

Mustafa Mesut Kayali
2007 Investment Management & Financial Innovations  
The investor sentiment theory advocates that the prices of securities predominantly held by individual investors may be influenced by their positive or negative sentiment about the market. The closed-end funds and exchange traded funds are such securities held primarily by individual investors and may be subject to investor sentiment. Thus, they may trade at premiums to or discounts from their net asset values in rising or declining markets. This article studies the daily percentage premiums
more » ... centage premiums and discounts of the Dow Jones Istanbul 20, Turkey's first exchange traded fund introduced in 2005. It is shown that the mean percentage premium/discount is small but significant. However, an examination of the frequency distribution of the differences between net asset values and prices reveals that only a few deviations are larger enough to allow arbitrage. Also, the Dow Jones Istanbul 20 sells at a discount, on average, in both up and down markets, the discount being significantly higher in rising markets. This result is inconsistent with the investor sentiment hypothesis.
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