Time-zone Arbitrage in United States Mutual Funds: Damaging to Financial Integration between the United States, Asia and Europe
In: Challenges and Opportunities for Trade and Financial Integration in Asia and the Pacific
AbstractHistorically, United States mutual funds have often calculated their asset values for international mutual funds using stale prices, because some fund components finish trading before the market closes. This resulted in daily fund returns becoming predictable. This allows an arbitrage opportunity for investors who move their money at the end of the United States trading day to profit from the next-day change in Asian and European equities. This acts as a tax on other investors in mutual funds that hold non-United States assets. This paper quantitatively traces the history of this phenomenon, known as time-zone arbitrage (TZA), in various mutual funds, particularly the Vanguard Fund Family, before and after the phenomenon became well known. The opportunity for TZA has diminished but not disappeared. This shrinkage together with the advent of Exchange-Traded Funds - which are not subject to time-zone arbitrage - makes investment in Asia and Europe more profitable for American mutual fund investors. This should increase United States investment in Asia and Europe and enhance the integration of these markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
This chapter was published in:
This item is provided by United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in its series STUDIES IN TRADE AND INVESTMENT with number tipub2563_chap8.
Contact details of provider:
Postal: The United Nations Building, Rajadamnern Nok Avenue, Bangkok 10200
Phone: (66-2) 288-1234
Fax: (66-2) 288-1000
Web page: http://www.unescap.org/
More information through EDIRC
United States; Asia and Europe; mutual funds; financial integration; time-zone arbitrage;
Find related papers by JEL classification:
- F1 - International Economics - - Trade
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mia Mikic).
If references are entirely missing, you can add them using this form.