RT Journal Article
SR Electronic
T1 Premiums on Exchange-Traded Funds
JF ETFs and Indexing
FD Institutional Investor Journals
SP 70
OP 74
VO 2001
IS 1
A1 J. Christopher Hughen
YR 2001
UL http://guides.pm-research.com/content/2001/1/70.abstract
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.