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Predictable pricing errors and fair value pricing of US‐based international mutual funds

Timothy E. Jares (Assistant Professor of Finance and Assistant Dean in the Monfort College of Business at the University of Northern Colorado)
Angeline M. Lavin (School of Business, Department of Finance, University of South Dakota, 414 E. Clark St., Vermillion SD 57069, USA; tel: +1 605 677 5566; fax: +1 605 677 5058; e‐mail: alavin@usd.edu)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 1 June 2004

Abstract

Fair value pricing is a critical issue for mutual funds with international market exposure because trading in the underlying foreign securities is not synchronous with US market trading. Using a sample of Japanese open‐end mutual funds that trade in the USA, this paper explores the potential for exploitation of common mutual fund pricing practices and identifies much larger pricing errors than previously reported. A simple, objective solution to the fair value pricing quandary is proposed. The solution, based on foreign exchange‐traded funds and the S&P 500, provides a timely, objective pricing alternative that is less exploitable than current mutual fund pricing practices.

Keywords

Citation

Jares, T.E. and Lavin, A.M. (2004), "Predictable pricing errors and fair value pricing of US‐based international mutual funds", Journal of Financial Regulation and Compliance, Vol. 12 No. 2, pp. 132-150. https://doi.org/10.1108/13581980410810759

Publisher

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Emerald Group Publishing Limited

Copyright © 2004, Emerald Group Publishing Limited