Abstract

http://ssrn.com/abstract=217168
 
 

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Day Trading International Mutual Funds: Evidence And Policy Solutions


William N. Goetzmann


Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Zoran Ivkovich


Michigan State University, Department of Finance

K. Geert Rouwenhorst


Yale School of Management - International Center for Finance

October 2000

AFA 2001 New Orleans; Yale SOM Working Paper No. ICF - 00-03

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 may hurt fund investors if speculators strategically seek to exploit mispricing or if the net flow of money into funds is correlated with these pricing errors. 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 alleviates these concerns by correcting net asset values for stale prices. We argue that fund companies and regulators should look at alternatives that allow funds to offer fair pricing to investors, which in turn decreases the need to resort to monitoring for day traders and redemption penalties.

Number of Pages in PDF File: 38

JEL Classification: G12, G18

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Date posted: April 5, 2000  

Suggested Citation

Goetzmann, William N. and Ivkovich, Zoran and Rouwenhorst, K. Geert, Day Trading International Mutual Funds: Evidence And Policy Solutions (October 2000). AFA 2001 New Orleans; Yale SOM Working Paper No. ICF - 00-03. Available at SSRN: http://ssrn.com/abstract=217168 or http://dx.doi.org/10.2139/ssrn.217168

Contact Information

William N. Goetzmann
Yale School of Management - International Center for Finance ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-432-8931 (Fax)
HOME PAGE: http://viking.som.yale.edu

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Zoran Ivkovich
Michigan State University, Department of Finance ( email )
315 Eppley Center
East Lansing, MI 48824-1122
United States
K. Geert Rouwenhorst (Contact Author)
Yale School of Management - International Center for Finance ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6046 (Phone)
203-432-8931 (Fax)
HOME PAGE: http://som.yale.edu/~geert/

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References:  21
Citations:  48
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