The paper "Investor Sentiment and the Closed-End Fund Puzzle" by Charles Lee, Andrei Shleifer, and Richard Thaler examines the proposition that fluctuations in discounts on closed-end funds are driven by changes in individual investor sentiment. The authors test this theory using data from closed-end funds, which are typically held and traded by individual investors. They find that discounts on closed-end funds narrow when small stocks perform well, suggesting that investor sentiment affects security returns. The paper also discusses the implications of the theory for understanding the four-part puzzle of closed-end funds: why they start at a premium, why they move to a discount within 120 days, why discounts fluctuate over time, and why large positive abnormal returns are realized when the fund is open-ended. The evidence supports the theory, showing that discounts on different funds are highly correlated, new funds are started when old funds sell at premiums or small discounts, and changes in discounts are correlated with returns on portfolios of stocks, particularly smaller stocks.The paper "Investor Sentiment and the Closed-End Fund Puzzle" by Charles Lee, Andrei Shleifer, and Richard Thaler examines the proposition that fluctuations in discounts on closed-end funds are driven by changes in individual investor sentiment. The authors test this theory using data from closed-end funds, which are typically held and traded by individual investors. They find that discounts on closed-end funds narrow when small stocks perform well, suggesting that investor sentiment affects security returns. The paper also discusses the implications of the theory for understanding the four-part puzzle of closed-end funds: why they start at a premium, why they move to a discount within 120 days, why discounts fluctuate over time, and why large positive abnormal returns are realized when the fund is open-ended. The evidence supports the theory, showing that discounts on different funds are highly correlated, new funds are started when old funds sell at premiums or small discounts, and changes in discounts are correlated with returns on portfolios of stocks, particularly smaller stocks.