Live Prices and Stale Quantities: T1 Accounting and Mutual Fund Mispricing

Journal of Investment Management (JOIM), First Quarter, 2012

Posted: 24 May 2012

See all articles by Peter Tufano

Peter Tufano

University of Oxford - Said Business School

Michael Quinn

Analysis Group, Inc.

Ryan Taliaferro

Acadian Asset Management

Date Written: May 24, 2012

Abstract

Most mutual funds use day-old fund holdings but current-day prices to calculate net asset values (NAVs). This practice, sanctioned under SEC Rule 2a-4, results in deviations between reported NAVs and returns and the economic values of those quantities. Using a sample of 26 funds’ trading data, we establish that small distortions in both NAVs and returns were fairly common in the early 2000s, and distortions were much more pronounced in the volatile markets of 2008.We discuss policy implications of this pricing rule, including mandating same-day pricing or ex post disclosure of pricing discrepancies.

Keywords: Mutual funds, net asset value, daily returns, NAV

JEL Classification: G00

Suggested Citation

Tufano, Peter and Quinn, Michael and Taliaferro, Ryan, Live Prices and Stale Quantities: T1 Accounting and Mutual Fund Mispricing (May 24, 2012). Journal of Investment Management (JOIM), First Quarter, 2012. Available at SSRN: https://ssrn.com/abstract=2066085

Peter Tufano (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0) 1865 288551 (Phone)

Michael Quinn

Analysis Group, Inc. ( email )

111 Huntington Avenue
Tenth Floor
Boston, MA 02199
United States
617.425.8188 (Phone)
617.425.8001 (Fax)

HOME PAGE: http://www.analysisgroup.com

Ryan Taliaferro

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States

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