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Reading Tomorrow's Newspaper: Predictability in ETF ReturnsJon A. FulkersonLoyola University Maryland - Sellinger School of Business & Management Bradford D. JordanUniversity of Kentucky - Gatton College of Business and Economics September 28, 2012 Journal of Index Investing, Forthcoming Abstract: Abstract: We study the persistence of ETF premiums and discounts. Following a day of high or low premiums or discounts over NAV, ETFs tend to maintain a premium or discount for up to five days, though there is some regression to the mean. Premiums also predict distinct patterns of returns in the following day. Overnight returns following a premium have large drops in prices following a high premium, but significantly high returns the next day. Surprisingly, the NAV returns over the next day also tend to be positive. Discounts show a similar, but opposite pattern with smaller magnitudes. We conclude that ETF premiums and discounts have some ability to predict future returns, including the fundamental returns of the underlying assets.
Number of Pages in PDF File: 23 Keywords: ETFs, daily returns, NAV JEL Classification: G12, G20 Accepted Paper SeriesDate posted: September 29, 2012 ; Last revised: February 25, 2013Suggested CitationContact Information
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