Investor heterogeneity and the cross-section of U.K. investment trust performance

We use the upper and lower bounds derived by Ferson and Lin (2010) to examine the impact of investor heterogeneity on the performance of U.K. investment trusts relative to alternative linear factor models. We find using the upper bounds that investor heterogeneity has an important impact for nearly all investment trusts. The upper bounds are large in economic terms and significantly different from zero. We find no evidence of any trusts where all investors agree on the sign of performance beyond what we expect by chance. Using the lower bound, we find that trusts with a larger disagreement about trust performance have a weaker relation between the trust premium and past Net Asset Value (NAV) performance.