PT - JOURNAL ARTICLE AU - J. Christopher Hughen TI - Premiums on Exchange-Traded Funds DP - 2001 Sep 21 TA - ETFs and Indexing PG - 70--74 VI - 2001 IP - 1 4099 - http://guides.pm-research.com/content/2001/1/70.short 4100 - http://guides.pm-research.com/content/2001/1/70.full AB - If exchange-traded fund prices diverge from net asset values, institutional investors may arbitrage the shares through an in-kind creation/redemption process sponsored by the fund company. This study analyzes the size and duration of exchange-traded fund premiums and the efficacy of arbitrage in reducing these premiums. While premiums are observed, they are rarely persistent. The fund-facilitated arbitrage process is generally successful in aligning price and value. However, even small premium fluctuations can mean the difference between a profit and loss for the short-term investors who dominate the trading of these securities.