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

37 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
Early online date30 Apr 2012
DOIs
StatePublished - May 2013
Externally publishedYes

Bibliographical note

Funding Information:
We would like to thank the staff at Blau Capital LTD. for their assistance throughout our work, especially Shai Blau for useful discussions and comments and Itai Blau for assistance with the data. We would also like to thank participants of the finance seminar at the Hebrew University and of the IFABS 2011 conference in Rome for helpful comments. This research was supported by a grant from The Israel Foundations Trustees (2011–2013), and by the Jewish Communities of Germany Research Fund.

Funding

We would like to thank the staff at Blau Capital LTD. for their assistance throughout our work, especially Shai Blau for useful discussions and comments and Itai Blau for assistance with the data. We would also like to thank participants of the finance seminar at the Hebrew University and of the IFABS 2011 conference in Rome for helpful comments. This research was supported by a grant from The Israel Foundations Trustees (2011–2013), and by the Jewish Communities of Germany Research Fund.

FundersFunder number
Israel Foundations Trustees

    Keywords

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

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