Title: Does ETF arbitrage exist?
Authors: Stoyu I. Ivanov
Addresses: Accounting and Finance Department, Lucas College and Graduate School of Business, San José State University, One Washington Square, San José, CA 95192-0066, USA
Abstract: This study examines whether Exchange Traded Funds' (ETF) arbitrage which ensures that the ETF closely tracks its underlying index exists on intradaily basis. I document that this arbitrage mechanism does exist and varies across ETFs. DIA and QQQQ have the most dynamic arbitrage activity; whereas SPY and IWM exhibit less active arbitrage trading. The paper also finds that the ETF changes in volume are not autocorrelated but that the ETF pricing deviations exhibit strong autocorrelation.
Keywords: ETF arbitrage; exchange traded funds; tracking error; pricing deviation; arbitrage trading; autocorrelation.
International Journal of Financial Services Management, 2013 Vol.6 No.3, pp.252 - 261
Received: 22 Jun 2013
Accepted: 23 Sep 2013
Published online: 27 Nov 2013 *