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
Date Written: March 11, 2020
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: Suggested Citation