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Abstract We examine the effect of the relative liquidity of international equity exchange-traded funds (ETFs) and their constituent portfolios on the price difference between the fund’s market prices and its… Click to show full abstract
Abstract We examine the effect of the relative liquidity of international equity exchange-traded funds (ETFs) and their constituent portfolios on the price difference between the fund’s market prices and its net asset values. We use data for a sample of 584 international equity ETFs listed in the U.S. over the period January 2012 to December 2017 and find that higher liquidity is associated with a lower absolute value of the ETF premium/discount. We document a positive relationship between liquidity and the price convergence of the ETFs and their underlying shares. The effect of liquidity on convergence is stronger for ETFs with high holding costs.
Journal Title: Journal of International Financial Markets, Institutions and Money
Year Published: 2020
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