Effective Fair Pricing of International Mutual Funds
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.
Finance and Financial Management | Portfolio and Security Analysis
Journal of Banking and Finance
CHUA, Choong Tze; LAI, Sandy; and Wu, Yangru.
Effective Fair Pricing of International Mutual Funds. (2008). Journal of Banking and Finance. 32, (11), 2307-2324. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/1112