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- Title
The Pricing of Exchange Traded Funds and the Roles of Primary and Secondary Market Participants.
- Authors
Alexander, Gordon J.; Peterson, Mark A.
- Abstract
We study the pricing of exchange traded funds (ETFs) and the associated arbitrage trading of them in the primary and secondary markets. We find a direct relation between primary and secondary market trading that is consistent with market-makers using the primary market to hedge their inventory risk in the secondary market, as well as to facilitate arbitrage. Such trading in both markets keeps ETF prices in line with their net asset value. We conclude that the existence of the primary market enhances secondary market efficiency.
- Subjects
EXCHANGE traded funds; SHORT sales (Real property); ARBITRAGE; SECONDARY markets; ASSETS (Accounting)
- Publication
Quarterly Journal of Finance, 2020, Vol 10, Issue 03, pN.PAG
- ISSN
2010-1392
- Publication type
Article
- DOI
10.1142/S2010139220500135