An Empirical Study On The Factors Affecting The Discount And Premium Of Cross-border ETFs

Cross-border ETF funds are a special type of exchange-traded open-end index fund,which refers to a type of ETF product that track specific indices in overseas regions or countries.Generally speaking,ETF products adopt the transaction mechanism of physical redemption,the asset portfolio list is highly transparent,and the exchange discloses the estimated net value information at high frequency.Although there is no arbitrage mechanism to prevent the generation of discounts and premiums,the cross-border ETFs in the market still shows a deviation between the market price and the net asset value for a period of time.There are significant differences in premium levels.In order to analyze the influencing factors of this discount and premium,this paper firstly corrects the discount and premium of crossborder ETF,removes the interference caused by abnormal closing prices,transaction conditions and other factors on the discount and premium,and tests the corrected discount and premium through cointegration analysis.Whether the premium persists over time in the time series.The empirical results show that the discount and premium of cross-border ETF will not exist significantly in the long run,and the phenomenon of discount and premium is mainly affected by short-term factors.The no-arbitrage pricing mechanism is still basically effective for the formation of cross-border ETF prices,and the fluctuation of discount and premium of cross-border ETFs is more a manifestation of short-term shocks.This paper analyzes six factors that affect the short-term discount and premium of cross-border ETFs: short-term exchange rate changes,securities trading volume,price volatility,local and tracking market volatility,and overall local market activity.The panel regression model confirms that these factors do have an impact on the level of cross-border ETF discount and premium,and this paper also finds that the historical discount and premium level of cross-border ETFs also has a significant impact on the discount and premium itself.This shows that there are many factors that interfere with the price formation process of cross-border ETFs.Even if the market where the assets are located and the trading market are relatively mature,the information will not be effective and fast due to factors such as time difference,asynchronous trading conditions,and fluctuations in the foreign exchange market.The special discount and premium of cross-border ETFs make investors who participate in such product transactions need to have a better investment level.A cross-border ETF product with frequent discount and premium fluctuations is not a complete "passive investment".Investors also need to pay extra attention to foreign exchange risks and global overseas market risks,which puts forward higher requirements for investors’ information tracking ability.For exchanges,it is not only necessary to disclose the information on the premiums of cross-border ETFs in a timely manner,but also to remind investors that this premiums is vital.