Time-Zone Arbitrage in Vanguard International Index Funds

Historically, mutual funds have often calculated their asset values for international mutual funds using stale prices, because some fund components finish trading before the market close. This caused daily fund returns to be predictable. This allows an arbitrage opportunity for investors who move their money at the end of the US trading day to reflect the next day change in European equities. We quantitatively trace the history of this phenomenon, known as time-zone arbitrage, in various mutual funds, particularly the Vanguard Fund Family, before and after the phenomenon became well known. The opportunity for TZA has diminished but not disappeared.