Research On Impact Factors Of ETF Pairs Trading Arbitrage Opportunity

Arbitrage is frequently described as one of the most important principles in finance. The study on the changes of market microstructure when arbitrage opportunities are created in China is rare.We have a research on mispricing between the Huatai borui CSI 300 ETF and Jianshi CSI 300 ETF.The price deviations which result in the creation and removal of arbitrage opportunities are caused by purchases and sales of the ETFs in normal trading hours. This study’s setting is ideal for an arbitrage microstructure study. Mispricing is easily identified and ETFs can be simply purchased and sold by all investors. We adopt two extremely liquid CSI 300 ETFs to analyze the financial market microstructure when mispricing allows the creation of arbitrage opportunities,which can enrich the existing literatures and provide practical suggestions to make a investment decision.This paper considers the time period from January 2013 to December 2013 as the sample period, selects Huatai borui CSI 300 ETF and Jianshi CSI 300 ETF as the sample, which is finished based on the combination of theoretical analysis and empirical study. Firstly, test two ETF and CSI 300, verifing that there is a long-term and balanced relationship among them. Secondy, use the MATLAB program to catch out 29 arbitrage samples scattered in 25 trading days. Then, select the daily volatility, average daily trading volume, paired ETF NAV deviation, the CSI 300 and CSI 300 volatility weighted index as influencial factors to analysis by adopting Marshal’s method. Finally use these factors as explanatory variables to establish the multiple regression model.Our evidence suggests that the mispricing is large enough to create arbitrage profits, and there are more arbitrage opportunities in China compared to United States market. Besides, it has shown that the average daily trading volume, CSI 300, CSI 300 volatility weighted index are moderate related. The CSI 300 and CSI 300 volatility weighted, the paired ETF NAV deviation, paired ETF’s average daily volatiliy and its average daily trading volume have some effects on the arbitrage opportunities of the paried ETF. Establish the multiple regression model to find that the CSI 300 volatility weighted index, the average NAV deviation, average daily volatility,average daily trading volume of the paired ETF have combined effects, which have impacts on paired ETF arbitrage opportunity. The ETF daily average trading volume, paired ETF NAV deviation and average daily trading volume have a positive impacts on arbitrage opportunities, while the CSI 300 volatility weighted index has a negative one. The changes of CSI 300 volatility weighted index and average daily trading volume have created greater impacts on arbitrage opportunities of paired ETF.