Dual Offerings of ETFs on the Same Stock Index: U.S. vs. Swiss ETFs

Abstract

According to the law of one price, two identical securities traded in different places at the same time should command the same price. This law applies not only on original securities but on any other synthetic, derivative, or portfolio of securities. In particular, with regard to multiple offerings of the same security this law further implies that their returns should be similar for all investors as long as differential transaction costs are not imposed. Differences in transaction cost lead investors to abandon the overvalued securities in favor of the undervalued ones causing the extinction of the former. This article examines the characteristics of numerous pairs of U.S. and Swiss ETFs written on the same stock index. Focusing on the institutional characteristics of the U.S. and Swiss markets the authors show that expense ratio, volume of trading, and trading frequency differ markedly between the two markets. The results also show that the U.S. ETF market dominates the Swiss ETF market in all cases in the sample. This finding supports the argument that dual or multiple offerings originated in countries with differences in institutional characteristics, in currencies, and in time zones are likely to differ.