Excess volatility and UK investment trusts

Samuel Agyei-Ampomah*, J. R. Davies

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


The issue of whether or not asset prices are more volatile than the underlying fundamentals is an empirical question with implications for market efficiency. Recent research suggests that the volatility of closed end fund returns in the USA is significantly higher than the returns on assets held by the funds. This has been attributed to noise trading as closed-end fund shares are predominantly held by individual investors. This study demonstrates that UK investment trust returns exhibit similar excess volatility in spite of the prevalence of institutional investors. However, big investment trusts in terms of market capitalisation show greater excess volatility than small trusts. Although most of the excess volatility appears to be idiosyncratic, investor sentiment index is the most important variable associated with residual returns.

Original languageEnglish
Pages (from-to)1033-1062
Number of pages30
JournalJournal of Business Fnance and Accounting
Issue number5-6
Publication statusPublished - 1 Jun 2005


  • Excess volatility
  • Investment trusts
  • Mutual funds
  • Net asset value
  • Variance bound tests


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