Short sale restrictions, differences of opinion, and single-country, closed-end fund discount

The purpose of this paper is to study the closed-end fund discount in Miller's (1977) framework. Miller's theory states that in the simultaneous presence of (1) short sale restrictions and (2) dispersion of investors' opinions, securities become overvalued. We show that discounts of single-country, closed-end funds are related to Miller's two conditions. Consistent with theoretical predictions, we find that neither dispersion of investor opinion nor short sale restrictions alone are positively related to the discount. However, when both conditions exist simultaneously, fund discounts increase.