Abstract
This article investigates whether the Exchange-Traded Funds (ETFs) trade away from their net asset value (NAV), the relationship between trading activity and the intraday volatility and premiums of ETFs, and how the divergence between the trading and NAV affects future return. Results indicate that ETFs trade, on average, at a slight daily dollar and percentage premium to their NAV amounting to $0.018 and 0.059 per cent, respectively. Mixed evidence on the relationship between volume and volatility are provided, but volume is found to be negatively affected by premium. In addition, return is found to be positively affected by the contemporaneous premium and negatively affected by the lagged premium, reflecting a violation to the efficient markets hypothesis. Finally, predictability patterns in ETFs’ returns are revealed.
Published Version
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