| One of the most spectacular successes in financial innovation since the advent of financial futures is probably the creation of Exchange Traded Funds (ETF). As index funds, they aim at replicating the performance of their benchmark indices as closely as possible. Contrary to conventional mutual funds, however, ETFs are listed on an exchange and can be traded freely in the Exchange. Issuers and exchanges set forth the diversification opportunities they provide to all types of investors at a lower cost, but also highlight their tax efficiency, transparency and low management fees. Attributed to its advantages ETF’s scale is getting bigger. Up to Mar31,2013, there are51kinds of ETF trading in the Chinese capital market.This article argues ETF discount or premium, respectively analyzes the factors which affect ETF discount or premium from the theoretical and empirical view. The result shows that constituent stocks price limits, suspension, traders’structure, ETF trading activity, related ETF products, irrational behavior of investors and macro-economic have an impact on the ETF discount or premium. The empirical results show that constituent stocks price limits, ETF trading activity have a significant impact, while other factors is not statistically significant. At the same time because of the volatility of ETF discount or premium rate is becoming smaller over time, the effectiveness of China’s stock market is strengthened.First, this article introduces the research background and significance, ETF developing process and ETF’s advantages. Second, through researching the relationship between ETF discount or premium and arbitrage, provide the basis for following study. Arbitrage will narrow ETF discount premium volatility. Third study the factors which affect ETF discount or premium and make assumptions. At last make empirical analysis about ETF secondary market price and NAV, and factors which affect ETF discount or premium, then test the assumptions made in the third part. |
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