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Forum | Papers » Premiums and arbitrage of Asian Exchange Traded Funds

Premiums and arbitrage of Asian Exchange Traded Funds

Marco Elia
December 2010 - n°12
Jel codes: G12, G15

This paper investigates the characteristics of the premiums of a sample of traditional and synthetic Asian Etfs traded on the Italian market Etfplus. Asynchronous trading generates large premiums.The absence of barriers to arbitrage should, however, guarantee that this mispricing between the Nav and the market price is due only to the new information available after the close of the Asian markets, but before the closing of the trading on the Italian market. Excessive premiums should be immediately eliminated, thanks to the possibility of creating and redeeming Etf shares at the official Nav.The characteristics of the premiums confirm that arbitrage drives them down to zero over time. However, their serial correlation suggests that arbitrage costs play an important role.The results of the analysis of the absolute value of the premiums show that bidask spread, trading volume, volatility of the underlying index and the financial crisis are important explanatory factors.

 

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