Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 30, 2020 erstellt
Description:
Zero returns are widely prevalent among fixed-income funds: on over 30% of trading days, net asset values (NAVs) do not change. We show that this high prevalence of zero returns is a symptom of stale pricing by funds that exercise valuation discretion over illiquid security holdings. Further evidence indicates that a strategic unwillingness of funds to immediately reflect losses also drives stale pricing. Because of stale NAVs, fund returns are predictable at daily, weekly, and even monthly horizons. Opportunistic traders withdraw capital from overvalued funds, exacerbating the risk of fund runs, while buy-and-hold investors face annual dilution costs of around $3 billion. Our results highlight adverse consequences from insufficient fair-valuation practices that persist even after corrective regulations that followed the 2003 market-timing scandal