The nonlinear price dynamics of U.S. equity ETFs

Gunduz Caginalp, Mark DeSantis and Akin Sayrak

Journal of Econometrics, 2014, vol. 183, issue 2, 193-201

Abstract: We investigate the price dynamics of large market-capitalization U.S. equity exchange-traded funds (ETFs) in order to uncover trader motivations and strategy. We show that prices of highly liquid ETFs can deviate significantly from their daily net asset values. By adjusting for changes in valuations, we report the impact of non-classical variables including price trend and volatility using data from 2008 to 2011. We find a cubic nonlinearity in the trend suggesting that traders are not only aware of the underreaction of others, but also self-optimize by anticipating others’ reactions, and sell when the uptrend is stronger than usual.

Keywords: Exchange-traded funds; Momentum; Volatility; Nonlinear dynamics (search for similar items in EconPapers)
JEL-codes: G02 G12 G14 G17 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:183:y:2014:i:2:p:193-201

DOI: 10.1016/j.jeconom.2014.05.009

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