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How does late trading and market timing dilute Net Asset Value?

How does late trading and market timing dilute Net Asset Value?

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Answer #1

Late trading takes place when hedge fund managers places orders after the time the NAV is calculated. The price they receive is the prior price of the NAV already determined during the day.

So, this helps them to profit from any information released after the price of mutual funds is released during the day but before it adjusts for the next day. The impact of this profit is felt by the price of the NAV the next day. Thus, late day trading can dilute the NAV, thus affecting investors.

Late trading is an illegal practice, a sit allows to place buy or sell orders after the dealing cut-off price, at the price which is already set.

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