Title

Effective Fair Pricing of International Mutual Funds

Publication Type

Journal Article

Publication Date

2008

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.

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Banking and Finance

Volume

32

Issue

11

First Page

2307

Last Page

2324

ISSN

0378-4266

Identifier

10.1016/j.jbankfin.2007.06.014

Publisher

Elsevier