Abstract: The prices of closed-end funds present a puzzle for market efficiency. The chief feature of the puzzle is that closed-end fund prices systematically deviate from fundamental values. In this respect, fundamental value is measured by net asset value (NAV), defined as the per share market value of the securities in the closed-end fund portfolio. Because fund shares trade on organized exchanges, just like the shares of corporations, the market value of the closed-end fund shares may differ from NAV. When the market value of closed-end fund shares exceeds NAV, the shares are said to trade at a premium. If market value is less, the shares trade at a discount. Typically closed-end funds begin trading at a premium, but within a few months begin to trade persistently at a discount. The closed-end puzzle illustrates opaque framing, heuristic-driven bias, and an inefficient market—in short, all three themes in behavioral finance.

Keywords: country funds, discount, Germany Fund, Israel Fund, NAV, net asset value, Nuveen, premium, puzzle, sentiment,