Journal of Banking & Finance Vol. 32 No. 11 2008
Effective fair pricing of international mutual funds
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.
- DOI
- 10.1016/j.jbankfin.2007.06.014
- Volume
- 32
- Issue
- 11
- Pages
- 2307-2324
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib