Skip to Content

Z-Statistic

Also called: Z-score

What is a z-statistic?

A z-statistic, or z-score, measures relative discounts and relative premiums for closed-end funds.

  • A z-statistic, or z-score, measures relative discounts and relative premiums for closed-end funds.
  • Z-scores can add context to a closed-end funds’ current discounts and premiums.
  • For a premium, a positive z-score implies the current premium is higher than average.
  • For a discount, a negative z-score implies the discount is lower than average.

Like open-end funds, closed-end funds have a net asset value (NAV), which is the total value of its underlying investments. The difference between a closed-end fund’s NAV and its share price is considered an absolute discount or premium. Closed-end funds with share prices below their NAVs are trading at a discount. If their share prices are above their NAVs, the closed-end funds are trading at a premium.

Discounts and premiums are relative to a certain share price. The z-score can help put the relative discount or premium into perspective. The difference between the current premium and average historical premium, divided by the premium’s standard deviation, is a premium’s z-score.

For a premium, a positive z-score implies the current premium is higher than average. For a discount, a negative z-score implies the discount is lower than average.