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The Efficiency of Net Asset Values for Asian–Country Mutual Funds in the US
Author(s) -
Varela Oscar
Publication year - 2002
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00449
Subject(s) - net asset value , inefficiency , asset (computer security) , closed end fund , mutual fund , value (mathematics) , economics , business , index (typography) , index fund , financial economics , monetary economics , open end fund , finance , institutional investor , microeconomics , mathematics , corporate governance , computer security , world wide web , computer science , market liquidity , statistics
The net asset values for Asian–country mutual funds in the US come from the underlying market’s close a half–day earlier and create inefficiencies that improve returns 6 to 12 times in a pure sense. While these are mitigated because of loads, restrictions on trading and fair value pricing, informational biases exist in trading such funds. These can be exploited with a simple rule: If one plans to trade at all, then one should buy (sell) the fund after its own Asian–country index falls (rises). Basing NAVs on the underlying market’s close after the NY market closes can eliminate this inefficiency.