Behavioral Finance - The Closed End Fund Puzzle

March 30, 2004
Frustrated by difficulties in explaining seemingly aberrant financial market behavior using contemporary methods of financial economics, a new school of behavioral finance has arisen that mixes psychology and economics. Despite the superficial appeal of this multi-disciplinary approach, this talk critiques behavioral finance by using the analytic tools of option pricing theory to solve a canoncial puzzle of behavioral finance - the closed end fund discount.