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Does premium impact Exchange-Traded Funds’ returns? Evidence from iShares

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  • Gerasimos Georgiou Rompotis

Abstract

This article investigates whether the Exchange-Traded Funds (ETFs) trade away from their net asset value (NAV), the relationship between trading activity and the intraday volatility and premiums of ETFs, and how the divergence between the trading and NAV affects future return. Results indicate that ETFs trade, on average, at a slight daily dollar and percentage premium to their NAV amounting to $0.018 and 0.059 per cent, respectively. Mixed evidence on the relationship between volume and volatility are provided, but volume is found to be negatively affected by premium. In addition, return is found to be positively affected by the contemporaneous premium and negatively affected by the lagged premium, reflecting a violation to the efficient markets hypothesis. Finally, predictability patterns in ETFs’ returns are revealed.

Suggested Citation

  • Gerasimos Georgiou Rompotis, 2010. "Does premium impact Exchange-Traded Funds’ returns? Evidence from iShares," Journal of Asset Management, Palgrave Macmillan, vol. 11(4), pages 298-308, October.
    • Handle: RePEc:pal:assmgt:v:11:y:2010:i:4:d:10.1057_jam.2009.23
    DOI: 10.1057/jam.2009.23
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    References listed on IDEAS

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    1. Timothy Jares & Angeline Lavin, 2004. "Japan and Hong Kong Exchange-Traded Funds (ETFs): Discounts, Returns, and Trading Strategies," Journal of Financial Services Research, Springer;Western Finance Association, vol. 25(1), pages 57-69, February.
    2. Blake, Christopher R. & Morey, Matthew R., 2000. "Morningstar Ratings and Mutual Fund Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 451-483, September.
    3. Edwin J. Elton, 2002. "Spiders: Where Are the Bugs?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 453-472, July.
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    Cited by:

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    2. Narat Charupat & Peter Miu, 2013. "The Pricing Efficiency Of Leveraged Exchange-Traded Funds: Evidence From The U.S. Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(2), pages 253-278, June.
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    4. Bertone, Stephen & Paeglis, Imants & Ravi, Rahul, 2015. "(How) has the market become more efficient?," Journal of Banking & Finance, Elsevier, vol. 54(C), pages 72-86.
    5. Tseng, Tseng-Chan & Lee, Chien-Chiang & Chen, Mei-Ping, 2015. "Volatility forecast of country ETF: The sequential information arrival hypothesis," Economic Modelling, Elsevier, vol. 47(C), pages 228-234.

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