The Efficiency of International Information Flow: Evidence from the ETF and CEF Prices

31 Pages Posted: 16 Nov 2007

See all articles by J. Christopher Hughen

J. Christopher Hughen

University of Denver - Daniels College of Business

Prem G. Mathew

Oregon State University - Department of Accounting, Finance, and Information Management

Date Written: November 13, 2007

Abstract

While similar in their trading and organization, closed-end funds (CEFs) and exchange-traded funds (ETFs) differ in their liquidity and ease of arbitrage. We compare their price transmission dynamics using a sample of funds that invest in foreign securities and are most likely to show the deficiencies in the manner in which they process information. Our analysis shows that ETF returns are more closely related to their portfolio returns than CEF returns. However, both fund types underreact to portfolio returns but overreact to domestic stock market returns. A simple trading strategy using these results is profitable with roundtrip trading costs less than 1.38% for CEFs and 0.71% for ETFs.

Keywords: Exchange-Traded Funds, Closed-End Country Funds, Market Efficiency, International Market Integration

JEL Classification: G15, G11, G14

Suggested Citation

Hughen, John Christopher and Mathew, Prem G., The Efficiency of International Information Flow: Evidence from the ETF and CEF Prices (November 13, 2007). Available at SSRN: https://ssrn.com/abstract=1029844 or http://dx.doi.org/10.2139/ssrn.1029844

John Christopher Hughen (Contact Author)

University of Denver - Daniels College of Business ( email )

2101 S. University Blvd
Denver, CO 80208-8951
United States
303-803-6171 (Phone)

HOME PAGE: http://www.hughen.com

Prem G. Mathew

Oregon State University - Department of Accounting, Finance, and Information Management ( email )

Corvallis, OR 97331
United States

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