Fair value pricing

 allows mutual fund complexes to comply with the SEC’s view that the Investment Company Act of 1940 requires funds to use fair value procedures when significant events subsequent to foreign market closes result in stale closing prices.

Fair value pricing and international index funds
After the 2003 mutual fund scandal, the SEC requirement that mutual fund companies institute fair value pricing became more widely used by mutual fund companies. The situation arose due to the fact that European and Pacific stock markets close many hours before the U.S. markets close. Thus the closing stock prices upon which mutual funds value their net asset value (NAV) at 4:00 p.m. Eastern Time are hours old. Investors having knowledge of subsequent information strongly suggesting higher or lower prices can place buy or sell orders at the stale net asset price and sell or buy at a profit the next trading day. Critics of this practice argue that such acts of time-zone arbitrage from short-term market timing imposes higher costs and diminished returns for long-term investors.

The return disparities introduced by fair market pricing can be either positive or negative in relation to the benchmark index return.

Finding fair market pricing adjustments for Vanguard international index funds
Beginning in 2005, each Vanguard international index fund annual report gives annual fund returns that have been skewed by fair value pricing. Although the reports state that the resulting discrepancy is short-lived and is likely to reverse the next day, the precise impact of the fair value adjustment is not disclosed.

While Vanguard does not provide daily fair market pricing data, they do report the adjustment on a quarterly basis on their Institutional Investors site.

To get the information, take the following steps;
 * Go to the Vanguard Institutional Investors site;
 * Under browse, select the Equity link;
 * Select the share classes option;
 * Scroll down the list to international equities tab and open it;
 * Find your desired fund (for example, the Vanguard Pacific Index Fund Admiral Shares) and open the page;
 * Select the performance tab.

The performance tab will provide a table of returns data for the fund, benchmark, and fair value pricing impact. These are reported on a quarterly basis. A drop box allows you to access historical data.

The fund's actual return is calculated by subtracting the fair value pricing impact percentage from the reported fund return. The table below represents the data for the Vanguard Pacific Index Fund Admiral Shares, as of September 30, 2014.

Academic papers

 * Boudoukh, Jacob and Richardson, Matthew P. and Subrahmanyam, Marti G. and Whitelaw, Robert, "The Last Great Arbitrage: Exploiting the Buy-and-Hold Mutual Fund Investor" (May 2000). NYU Working Paper No. FIN-00-009. Available at SSRN.
 * Donnelly, Katelyn Rae and Tower, Edward,"Time Zone Arbitrage in Vanguard International Index Funds", June 3, 2008. viewed 23 December, 2014.