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Effective fair pricing of international mutual funds

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Author Info

  • Chua, Choong Tze
  • Lai, Sandy
  • Wu, Yangru

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 32 (2008)
Issue (Month): 11 (November)
Pages: 2307-2324

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Handle: RePEc:eee:jbfina:v:32:y:2008:i:11:p:2307-2324

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Stale pricing Fair pricing International mutual funds Stepwise regression;

References

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Cited by:
  1. Galema, Rients & Plantinga, Auke & Scholtens, Bert, 2008. "The stocks at stake: Return and risk in socially responsible investment," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2646-2654, December.
  2. Leite, Paulo & Cortez, Maria Céu, 2014. "Style and performance of international socially responsible funds in Europe," Research in International Business and Finance, Elsevier, vol. 30(C), pages 248-267.

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