Live Prices and Stale Quantities: T1 Accounting and Mutual Fund Mispricing
Journal of Investment Management (JOIM), First Quarter, 2012
Posted: 24 May 2012
Date Written: May 24, 2012
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: Suggested Citation