Pricing Inefficiencies and Feedback Trading: Evidence From Country ETFs

International Review of Financial Analysis, Volume 70, 101498, July 2020, DOI: 10.1016/j.irfa.2020.101498

39 Pages Posted: 8 Nov 2016 Last revised: 27 May 2020

See all articles by Vasileios Kallinterakis

Vasileios Kallinterakis

University of Liverpool - Management School (ULMS)

Fei Liu

Department of Mathematical Sciences and Institute for Risk and Uncertainty, University of Liverpool

Athanasios A. Pantelous

Monash University - Department of Econometrics & Business Statistics

Jia Shao

University of Birmingham

Date Written: March 11, 2020

Abstract

In view of the established presence of wide deviations of US-listed country ETFs’ prices from their net asset values, we study whether feedback trading exists in this category of ETFs and whether it varies with their premiums and discounts. Using a sample of nineteen country ETFs for the 2000-2019 window, we find that feedback trading is present in several of them, particu-larly those targeting Asia Pacific markets. Feedback trading varies with the sign (i.e., premiums and discounts), level, and nature (observed/forecast) of these deviations, as well as prior to and after the outbreak of the 2008 crisis. Of particular note is the widespread feedback trading re-ported across the vast majority of country ETFs on those days for which there exist successful predictions of premiums/discounts, a fact suggesting that country ETFs’ premiums/discounts contain useful information as per their trading dynamics.

Keywords: Feedback Trading, Exchange Traded Fund, Premium, Discount

JEL Classification: G02, G11, G15

Suggested Citation

Kallinterakis, Vasileios and Liu, Fei and Pantelous, Athanasios A. and Shao, Jia, Pricing Inefficiencies and Feedback Trading: Evidence From Country ETFs (March 11, 2020). International Review of Financial Analysis, Volume 70, 101498, July 2020, DOI: 10.1016/j.irfa.2020.101498 , Available at SSRN: https://ssrn.com/abstract=2865232 or http://dx.doi.org/10.2139/ssrn.2865232

Vasileios Kallinterakis

University of Liverpool - Management School (ULMS) ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

Fei Liu

Department of Mathematical Sciences and Institute for Risk and Uncertainty, University of Liverpool ( email )

Chatham Street
Brownlow Hill
Liverpool, L69 7ZA
United Kingdom

Athanasios A. Pantelous (Contact Author)

Monash University - Department of Econometrics & Business Statistics ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Jia Shao

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

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