| Exchange Traded Fund is one of the open-end index funds with variable fund shares, which can be traded on exchanges. ETFs have be traded for 20 years. During these 20 years, the number of ETFs broke through 5000 globally and the scale reached more than 2 trillion USD with an average compound annual growth rate of 48.2%. which are truly world's fast growing financial products. Due to the low trading cost, good liquidity, high transparency and efficiency of asset allocation, ETFs are favorable investment targets and hedging products. Shanghai 50 ETF is officially China's first listed ETF. As of January 2016, China has 125 ETFs with a scale of 1.4 trillion RMB. The domestic ETF market in China became active in 2010 since seven ETFs were selected as targets of shorting and margin financing in A-share market. After a period of development and exploration, ETFs are finally experiencing an epoch of popularity among majority of investors in China.ETFs, index-linked investment products, track specific index as targets and their transaction prices and NAVs of fund shares should be consistent with the tracked index. Since ETFs are passively managed and use dual trading mechanism, the secondary market prices and their NAVs should be consistent. However, no matter the foreign or domestic ETFs market, ETFs discount/premium persists in the long term. There is no way to eliminate this phenomenon even in the U.S. market with well-developed arbitrage mechanism. From the perspective of rational expectation, there are still 30% of the phenomenon cannot be explained after considering institutional ownership, trading volume, arbitrage restrictions, liquidity, and market makers. This paper tries to explain the phenomenon of ETF discount/premium and focuses on the impact of investor sentiment on the phenomenon from the perspective of behavioral finance based on the research of long-term discount mystery in close-end funds. Researches about behavioral finance on investor behavioral and psychological factors are well developed with a relatively complete theoretical system. However, due to the incomplete data and unverified research methodology, specific researches on ETFs only are still lacking in China. So the study of behavioral finance on ETFs still needs to be developed further.This paper contributes to the researches on investment sentiment and market effectiveness theoretically and provides practical significance to individual and institutional investors and financial market authority.This paper researches on the impact of investor sentiment on ETFs discount/premium, and divides into five chapters as follows. The first chapter mainly introduces the background, significance, literature review, research idea, structure and potential innovation. The second chapter includes the current development of ETFs domestically and internationally, summary of the trading pattern and operation mechanism of ETFs, conclusion on the cost and arbitrage mechanism in ETFs and the theoretical foundation about ETFs discount/premium. The third chapter comments on the descriptive statistic on 36 ETFs, determines that excessive volatility exists in these ETFs though empirical methods, and based on the previous research screens out corresponding ETFs to verify the existence of investor sentiment in ETFs market. The fourth chapter is the core section of this paper. In this chapter, author constructed investor sentiment index through principal component analysis, did an empirical research using investor sentiment index in six ETFs author screened out to prove the relationship with the introduction of institutional investors as a mediator variable, and further analyzed the different results of high percentage of personal ownership or institutional ownership exhibited in the impact of investor sentiment on ETFs discount/premium through empirical analysis. The fifth chapter is a summary of final conclusions in this paper based on the previous research, and a discussion of the shortage and aspects for further research analysis. |
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