If the aim is to produce a price series that is regularly spaced in clock time (say every 15 minutes), there may not be trades or quotes at these precise times, and the most recent price is usually used as a proxy for the current price, resulting in at least some stale price
is usually used as a proxy for the current price, resulting in at least some stale price
They include self-selection bias, instant history or backfilling bias, survivorship bias, stale price
bias, and multi-period sampling bias.
These market timing or stale price
trades inflict harm on existing investors in a fund, who are normally small investors who simply buy and hold a fund for the long term.
To be certain that the existence of these premiums over the call price is not because of stale price
quotations, Table 4 also reports separate summary statistics for bid prices and sale prices.
From this set of bonds, only those bonds with a sufficient level of liquidity will be included: they must trade with enough frequency to prevent stale price
quotations and a reasonable two-way market must exist.
This is most helpful for ETFs that invest in domestic securities, however, because the INAV may reflect stale prices
of foreign securities in markets that are closed.
That means that the fund's current net asset value relies on stale prices
for 24 stocks out of a total of 28.
Unlike hedge funds, which as unregulated or loosely regulated entities selling mainly to sophisticated investors can afford to value a portfolio infrequently and even make use of stale prices
, mutual funds are regulated entities obliged to produce a daily NAV using the most accurate, clean and up-to-date prices available.
Other investors were allowed to conduct market timing trades to take advantage of stale prices
used by funds to calculate their net asset values at funds with stated policies against such trading.
Someone who can buy or sell to exploit the gap between stale prices
and real prices - a "market timer" - can make a killing.
As a result any nontrading bias in the basis due to stale prices
should be small.
Market timing refers to the short-term trading of fund shares to take advantage of stale prices
for foreign or illiquid securities held by the fund, or to utilize the fund's liquidity in a way that is harmful to other shareholders.