Abstract

http://ssrn.com/abstract=1709599
 
 

References (40)



 


 



ETF Arbitrage: Intraday Evidence


Ben R. Marshall


Massey University - Department of Economics and Finance

Nhut H. Nguyen


Massey University

Nuttawat Visaltanachoti


Massey University - Department of Economics and Finance

November 16, 2010


Abstract:     
We use two extremely liquid S&P 500 ETFs to analyze the prevailing trading conditions when mispricing allowing arbitrage opportunities is created. While these ETFs are not perfect substitutes, we show that their minor differences are not responsible for the mispricing. Spreads increase just before arbitrage opportunities, consistent with a decrease in liquidity. Order imbalance increases as markets become more one-sided and spread changes become more volatile which suggests an increase in liquidity risk. The price deviations are economically significant (mean profit of 6.6% p.a. net of spreads) and are followed by a tendency to quickly correct back towards parity.

Number of Pages in PDF File: 45

Keywords: Arbitrage, Pairs Trading, ETF

JEL Classification: G1, G14

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Date posted: November 16, 2010 ; Last revised: January 24, 2013

Suggested Citation

Marshall, Ben R. and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, ETF Arbitrage: Intraday Evidence (November 16, 2010). Available at SSRN: http://ssrn.com/abstract=1709599 or http://dx.doi.org/10.2139/ssrn.1709599

Contact Information

Ben R. Marshall (Contact Author)
Massey University - Department of Economics and Finance ( email )
Private Bag 11-222
Palmerston North, 30974
New Zealand
64 6 350 5799 (Phone)
64 6 350 5651 (Fax)
Nhut Hoang Nguyen
Massey University ( email )
New Zealand
Nuttawat Visaltanachoti
Massey University - Department of Economics and Finance ( email )
School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (9460) (Phone)
64 9 441 8177 (Fax)
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