Skip to main content
Article
Arbitrage, Liquidity, and the Valuation of Exchange Traded Funds.
Faculty Publications
  • Lucy F. Ackert, Kennesaw State University and Federal Reserve Bank of Atlanta
  • Yisong S. Tian, York University
Department
Economics, Finance, & Quantitative Analysis
Document Type
Article
Publication Date
12-1-2008
Abstract
This paper investigates the performance of U.S. and country exchange traded funds currently traded in the United States and provides new insight into their pricing. While the U.S. funds are priced closely to their net asset values, the country funds are not and can exhibit large, positive autocorrelations in fund premium. The mispricing of country funds is related to momentum, illiquidity, and size effects. We also find an inverted U-shaped relationship between fund premium and market liquidity, which suggests that more active trading does lead to lower mispricing but only after a certain level of liquidity is reached.
Citation Information
Ackert, L. F. and Tian, Y. S. (2008). "Arbitrage, Liquidity, and the Valuation of Exchange Traded Funds." Financial Markets, Institutions & Instruments, 17: 331–362.