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Time-Zone Arbitrage in Vanguard International Index Funds

By Katelyn Rae Donnelly

Historically, mutual funds have often calculated their asset values for international mutual funds using stale prices, because some fund components register their last trades before the market close. These stale prices have caused daily fund returns to be predictable. This allows an arbitrage opportunity for investors who move their money at the end of the US trading day to reflect the next day change in European equities. The thesis quantitatively traces the history of this phenomenon, known as time zone arbitrage, in various mutual funds, particularly the Vanguard Fund Family, before and after the
phenomenon became well known.

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Advisor: Edward Tower


Undergraduate Program Assistant
Jennifer Becker

Director of the Honors Program
Michelle P. Connolly