Abstract:

With one minute of high frequency data of 20 ETF funds, we study the arbitrage process of inetrmarket. We find that from the perspective of either the whole sample or intraday data, opportunities of reverse arbitrage (Buying ETF in secondary market→redemp-tion in primary market→selling constituent stocks of ETF in secondary market) appear far more frequently than opportunities of positive arbitrage (Buying constituent stocks of ETF in secondary market→purchasing ETF in primary market→selling ETF in secondary mar-ket). When ETF fund net asset value is higher, the ETF holding shares of institutional investors and individual investors are higher and of balanced proportion, arbitrage opportunities and yields of ETF arbitrage are improved in the meantime. Moreover, increase of ETF net assets value has positive effect on the reverse continuous arbitrage's profit and opportunity, but with the extension of arbitrage time, IOPV of ETF will weaken the influence degree. Furthermore, the increase of institutional investors holding shares of ETF reduces the market liquidity, so the probability of positive continuous arbitrage chance is increased simultaneously.

Key words: cost, fund, arbitrage, regression