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Attempts to explain the apparent anomaly of the discount to Net Asset Value of investment trust (or closed‐end fund) shares have had little success. The present study of UK monthly data finds that investment trust shares selected on the basis of high (low) discounts tend to experience high (low) abnormal returns in the year following selection, which implies mean reversion in the discounts and hence market inefficiency. Furthermore, evidence is presented that the Net Asset Value and the price of investment trust shares are cointegrated, which implies the existence of profitable trading rules based on the identification of Error Correction Mechanisms.

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