IHS Markit Fair Value Case Study
Tokyo Stock Exchange Holiday
December 31, 2019 - January 5, 2020
IHS Markit Fair Value in Review
The Tokyo Stock Exchange was closed from December 31st through
January 5th to celebrate the New Year. In the absence of readily
available quotes, IHS Markit provided fair value prices for
Japanese securities during this holiday. Using fair value pricing
ensures that long-term investors in the fund benefit from the most
accurate share price possible.
On January 4, 2020, a top Iranian commander was killed during U.S.
airstrikes, thus escalating U.S./Middle East tensions and leading
to a slump across the global markets. Since Japan markets were
closed during this time, they could not react to this event, but
our multifactor fair valuation model successfully captured these
events for the Japanese stocks.
IHS Markit Fair Value Results
Throughout the Tokyo stock exchange holiday, IHS Markit continued
to provide fair value prices, calculated using patent-pending
multi-factor methodology, for 3000+ Japanese securities. Global,
regional, sector, and entity specific factors were used to indicate
macro and micro level risks. The most common input factors in the
IHS Markit Japanese fair valuation models included:
• iShares MSCI Japan ETF
• S&P Futures
• Nikkei Futures
• Sector ETFs
• Japanese ADRs
• Currency JPY.USD
Table 1 highlights average directional correctness, closer to open
and arbitrage reduction for IHS Markit's Japanese universe
respectively during the exchange holiday. These metrics are defined
in the appendix on page five. The table indicates that the fair
value prices of 2300+ Japanese securities (81%) were closer to the
open price when Japan resumed trading on January 6, 2020.
Japan's Nikkei 225 Index in Aggregate
On December 31, 2019, a pro- Iranian militia stormed the U.S.
embassy in Iraq, drastically escalating an already tense
relationship between the two nations. As seen in the chart below,
global factors contributed to an aggregate decrease of -0.57% in
our fair valuation of the Nikkei 225.
In the two days following the incident, the protestors dispersed,
and world markets readjusted, causing our fair valuation of the
Nikkei 225 to increase back above the December 31st close.
Things changed on January 3, 2020 when Qasem Soleimani, Iran's most
influential military figure, was killed in an air raid. The markets
were swift to respond and our last fair valuation of the Nikkei 225
saw a nearly 1% drop from last close.
The chart below tracks the fair value adjustment of the Nikkei 225
throughout the closure.
Chart 1: Nikkei 225 Fair Value Adjustment
Large cap with
significant movement
The majority of the Japanese stocks opened down after the
New Year's holiday. Table 2 outlines how IHS Markit's Fair Value
captured a significant amount of holiday movement in some of the
largest Japanese securities in terms of market cap.
IHS Markit's Fair Value service helps clients meet their regulatory
and compliance requirements by providing daily fair value
adjustment factors and prices for over 150,000 equity and fixed
income securities. We provide security-level as well as
aggregate-level fair value adjustment factors across global hourly
snaps with the ability to add custom snap times tailored to client
requests. Visit our product
page or contact:
MK-FixedIncomePricingBusinessDevelopment@ihsmarkit.com to learn
more.
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Appendix
Directional Correctness: occurs when a
fair value price is in the same direction (+, -) as the actual
overnight return of the underlying security. The values present in
the document are the proportion of securities within a group that
were directionally correct.
Closer to Open: whether a fair value price is
closer to the next day open than the previous close. The values
present in the document are the proportion of securities within a
group that were closer to open.
Arbitrage Reduction: the amount of the movement in
the underlying security that we captured using our Fair Value
price. These values can be positive or negative, with 100% being
full capture. For tables 1 and 2, the values are the average
arbitrage reduction across the group.
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.