This paper examines the proposition that fluctuations in discounts of closed- end funds are driven by changes in individual investor sentiment. The theory implies that discounts on various funds move together, that new funds get started when seasoned funds sell at a premium or a small discount, and that discounts are correlated with prices of other securities affected by the same investor sentiment. The evidence supports these predictions. In particular, we find that both closed-end funds and small stocks tend to be held by individual investors, and that the discounts on closed-end narrow when small stocks do well. The Journal of Finance, Vol. XLVI, No. 1 (March 1991), pp. 75109. (Reprinted withpermissionof The Journal of Finance.)