Skip to main content
×
Home
    • Aa
    • Aa

Day Trading International Mutual Funds: Evidence and Policy Solutions

Abstract
Abstract

Daily pricing of mutual funds provides liquidity to investors but is subject to valuation errors due to the inability to observe synchronous, fair security prices at the end of the trading day. This mayhurt fund investor if speculatior strategiclly seek to exploit mispricing or if the net flow of money into funds is correlated with these pricing eerrors. We show that mutual funds are exposed to speculative traders by using a simple day trading rule that yields large profits in a sample of 391 U.S.-based open-end international mutual funds. We propose a simple “fair pricing” mechanism that alleviated these concerns by correcting net asset values for stale prices. We argue that fund companies and regulatiors should look at alternatives that allow funds to offer fair prciing to investors, which, in turn, decreases the need to resort to monitoring for day traders and redemption penalties.

Copyright
Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

A. Craig ; A. Dravid ; and M. Richardson . “Market Efficienty around the Clock: Some Supporting Evidence Using Foreign Based Derivatives.” Journal of Financial Economices, 39 (1995), 161180.

R. M. Edelen , and J. Warner . “Aggregate Price Effects of Institutional Trading: a Study of Mutual Fund Flow and Market Returns”. Jounal of Financial Economics, 59 (2001), 195220.

C. S. Eun , and S. Shim . “International Transmission of Stock Market Movements”. Journal of Financial and Quantitative Analysis, 24 (1989), 241256.

K. French , and R. Roll . “Stock Return Variances: the Arrival of Information and the Reaction of Traders”. Jounal of Financial Economices, 17 (1986), 526.

Y. Hamao ; R. W. Masulis ; and V. Ng . “Correlations in Price Changes and Volatility Across Internationa Stock Markets”. Review of Financial Studies, 3 (1990), 281307.

J. E. Hilliard The Relation Between Equity Indices on World Exchanges”. Journal of Finance, 34 (1979), 103114.

A. Karolyi , and R. Stulz . “Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Co-Movements”. Journal of Finance, 51 (1996), 951986.

M. A. King , and S. Wadwhani . “Transmission of Volatility Between Stock Markets”. Review of Financial Studies, 3 (1990), 533.

A. W. Lo , and A. C. MacKinaly . “Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Tesst.” Review of Financial Studies, 1 (1988) 4166.

D. Neumark ; P. A. Tinsley ; and S. Tosini . “After-Hours Stock Prices and Post-Crash Hang-Overs”. Journal of Finance, 46 (1991), 159178.

W. Newey , and K. West . “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covarinance Matrix”. Econometrica, 55 (1987) 703708.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 4 *
Loading metrics...

Abstract views

Total abstract views: 149 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 29th March 2017. This data will be updated every 24 hours.