September 1989. The shares of the Spain
Fund, Inc., a closed-end mutual fund investing in publicly
traded Spanish securities, were bid up in price from approximately
net asset value (NAV)-the combined market value of
the underlying investments divided by the number of shares
outstanding-to more than twice that level. Much of the buying
emanated from Japan, where underlying value was evidently
less important to investors than other considerations. Although
an identical portfolio to that owned by the Spain Fund could
have been freely purchased on the Spanish stock market for half
the price of Spain Fund shares, these Japanese speculators were
not deterred. The Spain Fund priced at twice net asset value
was another example of trading sardines; the only possible reason
for buying the Spain Fund rather than the underlying securities
was the belief that its shares would appreciate to an even
more overpriced leveL Within months of the speculative
advance the share price plunged back to prerally levels, once
again approximating the NA\1, which itself had never significantly
fluctuated.