Fair value model based system, method, and computer program product for valuing foreign-based securities in a mutual fund

1. A system for determining fair value prices of financial securities of international markets, comprising:

a processor;

a memory coupled to the processor, wherein the memory stores program instructions executable by the processor to implement:

selecting a universe of securities of a particular international market;

computing overnight returns of each security in the selected universe over a predetermined past period of time;

determining out-of-sample or back-testing performance of a plurality of return factors;

selecting at least one return factor of a domestic financial market from a the plurality of return factors, based on at least the determined out-of-sample or back-testing performance;

computing, for each selected return factor, the return factor's daily return over said predetermined past period of time;

calculating, for each selected return factor, a return factor coefficient for each security in the selected universe by performing a time series regression to obtain the contribution of each return factor's return to the security's overnight return; and

storing each calculated return factor coefficient in a data file;

wherein the stored return factor coefficients can be used in conjunction with current return factor daily return values to predict current overnight returns for all securities in the selected universe of securities, which predicted current overnight returns can be used in conjunction with closing prices on said particular international market of each security of said selected universe to determine a fair value price of each security of said selected universe.

2. The system of claim 1 , wherein selecting the universe of securities comprises selecting securities from the group of substantially all relatively active securities in a selected international market.

3. The system of claim 1 , wherein computing overnight returns uses historical price data to compute overnight returns of each said security over said predetermined past period of time.

4. The system of claim 1 , wherein said plurality of return factors includes domestic market return, domestic sector return, exchange traded fund (ETF) return for said selected international market, and American Depositary Receipt (ADR) return for each security in said selected universe.

5. The system of claim 1 , wherein selecting at least one return factor comprises selecting at least two return factors.

6. The system of claim 1 , wherein calculating a return factor coefficient includes adding a security price fluctuation factor into said time series regression.

7. The system of claim 6 , wherein calculating a return factor coefficient comprises solving the equation:

r i =β m m+β s s j +ε.

8. The system of claim 6 , wherein calculating a return factor coefficient comprises solving the equation:

r i =β m m+ε.

9. The system of claim 6 , wherein calculating a return factor coefficient comprises solving the equation:

r i =β s ( s j +m )+ε.

10. The system of claim 6 , wherein calculating a return factor coefficient comprises solving the equation:

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11. The system of claim 6 , wherein calculating a return factor coefficient comprises solving the equation:

r i =β e e+ε.

12. The system of claim 6 , wherein calculating a return factor coefficient comprises solving the equation:

r i =β e e+ε.

13. The system of claim 6 , wherein calculating a return factor coefficient comprises solving the equation:

r i =β m m+β e e+ε.

14. A system for determining fair value prices of financial securities of international markets, the system comprising:

a processor;

a memory coupled to the processor, wherein the memory stores program instructions executable by the processor to implement:

receiving electronic data for a pre-selected universe of securities of an international market;

computing overnight returns of each security in the selected universe over a predetermined past period of time;

determining out-of-sample or back-testing performance of a plurality of return factors;

selecting at least one return factor of a domestic financial market from the plurality of return factors, based on at least the determined out-of-sample or back-testing performance;

computing, for each selected return factor, the return factor's daily return over said predetermined past period of time;

calculating, for each selected return factor, a return factor coefficient for each security in the selected universe by performing a time series regression to obtain the contribution of each return factor's return to the security's overnight return; and

transferring one or more of the calculated return factor coefficients to a third party via an electronic network;

wherein the calculated return factor coefficients can be used in conjunction with current return factor daily return values to predict current overnight returns for all securities in the selected universe of securities, which predicted current overnight returns can be used in conjunction with closing prices on said particular international market of each security of said selected universe to determine a fair value price of each security of said selected universe.

15. The system of claim 14 , further comprising, at said computer, selecting a universe of securities of a particular international market.

16. The system of claim 15 , wherein the step of selecting the universe of securities comprises the step of selecting securities from the group of substantially all relatively active securities in a selected international market.

17. The system of claim 14 , wherein the step of computing overnight returns uses historical price data to compute overnight returns of each said security over said predetermined past period of time.

18. The system of claim 14 , wherein said plurality of return factors includes domestic market return, domestic sector return, exchange traded fund (ETF) return for said selected international market, and American Depositary Receipt (ADR) return for each security in said selected universe.

19. The system of claim 14 , wherein the step of selecting at least one return factor comprises the step of selecting at least two return factors.

20. The system of claim 14 , wherein the step of calculating a return factor coefficient includes the step of adding a security price fluctuation factor into said time series regression.

21. The system of claim 20 , wherein the step of calculating a return factor coefficient comprises solving the equation:

r i=β m m=β s s j +ε.

22. The system of claim 20 , wherein the step of calculating a return factor coefficient comprises solving the equation:

r i =β m m+ε.

23. The system of claim 20 , wherein the step of calculating a return factor coefficient comprises solving the equation:

r i =β s ( s j +m )+ε.

24. The system of claim 20 , wherein the step of calculating a return factor coefficient comprises solving the equation:

r

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25. The system of claim 20 , wherein the step of calculating a return factor coefficient comprises solving the equation:

r i =β e e+ε.

26. The system of claim 20 , wherein the step of calculating a return factor coefficient comprises solving the equation:

r i =β e e+ε.

27. The system of claim 20 , wherein the step of calculating a return factor coefficient comprises solving the equation:

r i =β m m+β e e+ε.

28. The system of claim 14 , wherein said electronic data on said universe of securities is received through an electronic network.