Modeling based on market rates as a way to estimate the price of Chilean fixed- income investment fund shares: linear and non-linear methodologies explained

Authors

Abstract

This study addresses a problem that Chilean stockbrokers must face when - acting as market makers - they have to determine bid and ask prices for local fixed-income investment fund shares. As a solution, a mathematical model is proposed based on a share’s last known net asset value and the daily fluctuation of the reference fixed-income market rate (Central Bank of Chile bonds in 5-year development units - BCU 5). Results obtained show a clear improvement of the proposed model’s outcome when compared to simply using the last information available in the market to determine the share’s price.

Keywords:

Investment funds, Market Maker, Chile

References

ACAFI. (2020). XLII Catastro de fondos de inversión [Data set]. https://www.acafi.cl/catastro-de-fondos/

Clark, T., West, K. (2007). Approximately normal tests for equal predictive accuracy in nested models. Journal of Econometrics, 138(1), 291-311. https://doi.org/10.1016/j.jeconom.2006.05.023

CMF. (2002, 17 de enero). Circular nº1578. https://www.cmfchile.cl/normativa/cir_1578_2002.pdf

CMF. (2010, 28 de octubre). Circular nº1990. https://www.cmfchile.cl/normativa/cir_1990_2010.pdf

CMF. (2012, 17 de enero). Norma de carácter general nº327. http://www.svs.cl/normativa/ncg_327_2012.pdf

CMF. (2015, 20 de enero). Norma de carácter general nº376. https://www.cmfchile.cl/normativa/ncg_376_2015.pdf

LVA Índices. (2020). Informe Comercial [Data set]. compra particular

Ministerio de Hacienda. (1974, 31 de diciembre). Decreto de ley nº 824. https://www.bcn.cl/leychile/navegar?idNorma=6368

Ministerio de Hacienda. (1981, 22 de octubre). Ley nº 18.045 del mercado de valores. https://www.svs.cl/portal/principal/605/articles-806_doc_pdf.pdf

Servicio de Impuestos Internos. (2018, 20 de diciembre). Circular nº 58. http://www.sii.cl/normativa_legislacion/circulares/2018/indcir2018.htm

Rapach, D., Zhou, G. (2013). Forecasting stock returns. Handbook of Economic Forecasting, 2 (part A), 328-383. https://doi.org/10.1016/B978-0-444-53683-9.00006-2

Welch, I., Goyal, A. (2008). A Comprehensive Look at The Empirical Performance of Equity Premium Prediction. The Review of Financial Studies,21 (4), 1455-1508. https://doi.org/10.1093/rfs/hhm014

West, K. (1996). Asymptotic Inference about Predictive Ability. Econométrica, 64 (5), 1067-1084. https://doi.org/10.2307/2171956