Stale Prices: Empirical studies generally require a series of current prices, and, unless the price formation process is observed continuously, this is impossible to achieve and stale prices must be used.
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 observations.
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.
Asness, Krail, and Liew [16] argue that the presence of stale prices due to illiquidity or managed pricing can artificially reduce estimates of volatility and correlation with traditional indices.
They include self-selection bias, instant history or backfilling bias, survivorship bias, stale price bias, and multi-period sampling bias.
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.
Mutual fund prices become outdated, or "stale." Someone who can buy or sell to exploit the gap between
stale prices and real prices - a "market timer" - can make a killing.
Yet, clearly premiums exist and cannot be explained away as artifacts of
stale prices.
As a result any nontrading bias in the basis due to
stale prices should be small.
