How Informative Is Floating NAV When Securities Trade Infrequently?

• Published date: 01 February 2016
• Date: 01 February 2016
• DOI: http://doi.org/10.1111/fire.12094

The Financial Review 51 (2016) 69–82

How Informative Is Floating NAV When

Securities Trade Infrequently?

Kyle D. Allen

TexasTech University

George D. Cashman

Marquette University

Drew B. Winters∗

TexasTech University

Abstract

We examine if a floating net asset value (NAV) increases the transparency of risk for

investors. Using closed-income fixedincome funds we find little evidence that a floating NAV

helps investors better understand the value and risk of a fund when a fund’s assets trade

infrequently. This potentially informs the debate regarding the adoption of a floating NAV in

the money market industry. Our results suggest that it is unlikely that the benefits of floating

NAV will outweigh the costs.

Keywords: floating NAV, fixed income funds, money market funds, closed-end funds

JEL Classifications: G10, G18

∗Corresponding author: Texas Tech University, Rawls College of Business, Lubbock, TX 79409-2101;

Phone: (806) 834-3350; Fax: (806) 742-3197; E-mail: drew.winters@ttu.edu.

C2016 The Eastern Finance Association 69