Effective fair pricing of international mutual funds

Choong Tze Chua, Sandy Lai, Yangru Wu

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)2307-2324
Number of pages18
JournalJournal of Banking and Finance
Volume32
Issue number11
DOIs
StatePublished - Nov 2008

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Fair pricing
  • International mutual funds
  • Stale pricing
  • Stepwise regression

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