Shadow Pricing

What is 'Shadow Pricing'

1. The actual market value of one share of a money market fund. In this case, shadow pricing refers to securities that are accounted for based on amortized costs rather than a market valuation assignment.
2. The assignment of dollar values to non-marketed goods such as production costs and intangible assets. Shadow pricing is usually subject to various assumptions and is fairly subjective within certain guidelines.

BREAKING DOWN 'Shadow Pricing'

1. A distinguishing feature of money market funds is that their shares always have a nominal net asset value of $1. However, the actual net asset value may be slightly higher or lower than $1. Money market funds are required to disclose the shadow price of shares to give investors more detailed information about the fund's performance.
2. When performing different types of cost-benefit analyses, certain costs or benefits are intangible and, in order to fully analyze a scenario, all of these variables must be assigned values. For example, when performing a cost-benefit analysis on a mining operation, the lost intangible value associated with the scenic views must be priced and factored in as a cost.

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