The relation between stock returns and default risk: Examining in KOSPI market

This paper sets out to discover whether European Holding Companies trade at a discount compared to their fair value. This is determined by examining the Net Asset Value and Share Prices. Previous research on similar funds such as Closed-End (Country) Funds, show that discounts appear in these sector. In combination with this previous research, explanations for discounts are looked in to. Examples of these explanations are liquidity, market sentiment and leverage. In addition, the relationship between discounts and market sentiment is tested by using the MSCI World Index as a proxy for market sentiment. Results show that European Holding Companies are indeed traded at a discount and that there is a significant positive relation between these discounts and market sentiment.