Overreaction of country ETFs to US market returns: Intraday vs. daily horizons and the role of synchronized trading

Ariel Levy, Offer Lieberman

Research output: Contribution to journalArticlepeer-review

33 Scopus citations

Abstract

In this paper we study the intraday price formation process of country Exchange Traded Funds (ETFs). We identify specific parts of the US trading day during which Net Asset Values (NAVs), currency rates, premiums and discounts, and the S&P 500 index have special effects on ETF prices, and characterize a special intraday and overnight updating structure between these variables and country ETF prices. Our findings suggest a structural difference between synchronized and non-synchronized trading hours. While during synchronized trading hours ETF prices are mostly driven by their NAV returns, during non-synchronized trading hours the S&P 500 index has a dominant effect. This effect also exceeds the one that the S&P 500 index has on the underlying foreign indices and suggests an overreaction to US market returns when foreign markets are closed.

Original languageEnglish
Pages (from-to)1412-1421
Number of pages10
JournalJournal of Banking and Finance
Volume37
Issue number5
DOIs
StatePublished - 1 May 2013
Externally publishedYes

Keywords

  • Arbitrage
  • ETF
  • Hedging
  • Overreaction
  • Structured products
  • Synchronized trading

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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