Effective fair pricing of international mutual funds
Journal
Journal of Banking and Finance
Journal Volume
32
Journal Issue
11
Pages
2307
Date Issued
2008-11-01
Author(s)
Abstract
We propose a new methodology to provide fair prices of international mutual funds by adjusting prices at the individual security level using a comprehensive and economically relevant information set. Stepwise regressions are used to endogenously determine the stock-specific optimal set of factors. Using 16 synthetic funds whose characteristics are extracted from 16 corresponding actual US-based Japanese mutual funds, we demonstrate that our method estimates fund prices significantly more accurately than existing methods. Although existing fair-pricing methods provide an improvement over the current practice of simply using Japanese market closing prices, they are still highly vulnerable to exploitation by market-timers. By contrast, our method is the most successful in preventing such strategic exploitation since no competing method can profit from our stated prices. © 2008 Elsevier B.V. All rights reserved.
Subjects
Fair pricing | International mutual funds | Stale pricing | Stepwise regression
Publisher
ELSEVIER SCIENCE BV
Type
journal article