Mutual funds claim that they employ fair value pricing to prevent active in
vestors from trading on their beliefs that the funds' net asset values are
stale. Our results support the funds' assertions, We estimate the returns f
rom the following active strategy: buy international open end mutual funds
that do not employ fair value pricing on days that the S&P500 index rises b
y a large amount, and/or sell them on days that the S&P500 index declines b
y a large amount. These active strategies significantly outperform pure buy
-and-hold strategies. We conclude that international mutual funds should ma
ke greater use of fair value pricing. (C) 2001 Elsevier Science B.V. All ri
ghts reserved. JEL classification. G20.