News

SEMINAR ON THE CZECH ECONOMY

Monday 19 October 2009

Guest speaker Dr Irena Jindrichovska from the Buckingham Business School, author and co-author of books and papers on finance and financial statement analysis, gave a seminar in the Economics and International Studies Seminar series on Wednesday 7 October on "Open-ending Czech Closed-End Funds: Evidence from Transitional Market".

Dr Jindrichovska explained that the Czech economy had been privatised after 1990 by the creation of about 2,000 investment trusts. Members of the Czech population were allocated vouchers that could be used to participate in these trusts, which then used them to purchase shares in the newly privatised Czech businesses. The closed trusts were also illiquid, so it was difficult for small shareholders to sell their shares. In consequence it was felt that shares in these investment trusts were being traded at too substantial a discount, and that small shareholders were being short-changed.

In the late 1990s it was decided to 'open' these trusts, in order to make them more like the investment trusts in other countries. The trusts could now grow if more shareholders wanted to get in, and their shares became more tradable. The change, allowing trusts to become open, was announced in 1998. Dr Jindrichovska studied the price effect of this announcement and found that shares in the trusts rose by about 5% at that time, a significant rise. When individual trusts actually put the change into practice, however, there was an insignificant change in trust prices. Dr Jindrichovska surveyed a comparatively small number of trusts, and looked at the situation over a relatively short time. Her 'announcement' result could perhaps have shown an even bigger effect if the trend had been studied over the months preceding the formal announcement.

Report by Kitty van Gendt and Mr Malcolm Rees