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Financial terms in "Investing and Trading"

1. Sao Paolo stock exchange (SAO)

2. tail

3. Insider Trading and Securities Fraud Enforcement Act of 1988

4. speculation index

5. fulcrum fee

6. orderly market

7. impact day

8. Underwrite

9. financial literacy

10. Barra's Performance Analysis

11. weekly chart

12. Chartered Financial Analyst

13. market if touched order

14. Management fee

15. closing bell

16. misappropriation theory

17. Dividend

18. insider trading

19. Money management

20. Liquidate

21. net volume

22. leverage clientele

23. decline

24. greensheet

25. Common Stock

26. interest-elastic investment

27. portfolio effect

28. zero downtick

29. Qubes

30. movement

31. Red herring

32. soft call provision

33. Debt Security

34. matched bargain

35. buyer's call

36. freed up

37. At-the-money

38. demo account

39. mutual fund

40. cyclical market

41. fictitious trading

42. at the full

43. convertible arbitrage

44. experimental finance

45. best bid

46. go private

47. inverted spread

48. tap stock

49. Market Volatility Index

50. shelf registration

51. implementation shortfall

52. International Swaps and Derivatives Association

53. liability matching

54. Withdrawal

55. Against Actuals

56. split-level investment trust

57. Offshore fund

58. Appeals Committee

59. go-go fund

60. buy-side research

61. headline risk

62. Extrinsic Value

63. Montreal Exchange (MX)

64. accrual of discount

65. Initial Performance Bond

66. bond laddering

67. last sale

68. Nasdaq Small Cap Market

69. low

70. Australian Stock Exchange

71. Investment Corporation of Dubai (ICD)

72. Modern portfolio theory

73. locked market

74. note auction

75. Paper Profit

76. FCM

77. Naked option

78. riskless rate of return

79. index-linked security

80. futures option

81. securitization

82. loan crowd

83. warrant

84. X

85. net proceeds

86. Level III quotes

87. Borrow

88. Corporate bond

89. burn and churn

90. Hedger

91. Private Wealth Management (PWM)

92. National Investor Relations Institute (NIRI)

93. national best bid and offer

94. Morningstar, Inc.

95. return if unchanged

96. volatility arbitrage

97. churn rate

98. checking the market

99. International Capital Market Association (ICMA)

100. opening bell

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Featured term of the day

Definition / Meaning of

Stale Price Arbitrage

Categories: Finance,

for a number of assets, the most recent transaction price at 4PM ET does not fully reflect all available market information. One example is international equities that trade on exchanges that are located in different time zones and close 2-15 hours before U.S. markets. In addition, domestic small-capitalization equities and high-yield and convertible bonds often trade infrequently and have wide bid-ask spreads. This can cause the most recent transaction price to be much different from the price that one would see in a liquid market at 4 PM, even for assets that trade on exchanges that are open at that time. Investors can take advantage of mutual funds that calculate their NAVs using stale closing prices by trading based on recent market movements. For example, if the U.S. market has risen since the close of overseas equity markets, investors can expect that overseas markets will open higher the following morning. Investors can buy a fund with a stale-price NAV for less than its current value, and they can likewise sell a fund for more than its current value on a day that the U.S. market has fallen. Similar opportunities exist when the values of infrequently or illiquidly-traded domestic assets have recently changed. With normal market arbitrage, as more traders learn where to buy an item at relatively low cost and where to sell it at relatively high value, market pressures from such traders tend to stabilize prices. With stale price arbitrage, there is no corresponding pressure for market correction. That is, a fund always pays the going market rate even if that fund has an agreement with its customers to only charge them the price from the prior day closing. Accordingly, even if such agreements ultimately impact the prices of trades by the mutual funds, there is no impact on the price paid by the customer of the mutual fund. In that sense, the stale price arbitrage opportunity can last as long as a mutual fund honors its stale price agreement with its customers. Also referred to as net asset value arbitrage or nav arbitrage.

Most popular terms

1. Beta
2. Office Of Compliance Inspections And Examinations (OCIE)
3. Limited Severability Provision
4. Retaliation Claims
5. IRA Rollover
6. Long-term Care Insurance
7. Weighted Stock Index
8. Charitable Remainder Trust
9. Sell Short
10. Target Date Fund

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