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Reading Tomorrow’s Newspaper: Predictability in ETF Returns

Jon Fulkerson and Bradford D. Jordan
The Journal of Beta Investment Strategies Summer 2014, 4 (1) 23-31; DOI: https://doi.org/10.3905/jii.2013.4.1.023
Jon Fulkerson
is an assistant professor of finance at Loyola University Maryland in Columbia, MD.
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  • For correspondence: jafulkerson@loyola.edu
Bradford D. Jordan
holds the Richard W. and Janis H. Furst Endowed Chair in Finance in the College of Business and Economics at the University of Kentucky in Lexington, KY.
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  • For correspondence: bjordan@uky.edu
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Abstract

We study the persistence of ETF premiums and discounts. Following a day of high or low premiums, or premiums or discounts over NAV, ETFs tend to maintain a premium or discount for as many as five days, though there is some regression to the mean. Premiums also predict distinct patterns of returns on the following day. Overnight prices drop following a high premium, but high-premium ETFs have significantly higher returns the next day. Surprisingly, the NAV returns over the next day also tend to be positive. Discounts show a similar but opposite pattern, with smaller magnitudes. We conclude that ETF premiums and discounts have some ability to predict future returns, including the fundamental returns of the underlying assets.

TOPICS: Exchange-traded funds and applications, style investing, mutual fund performance

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Reading Tomorrow’s Newspaper: Predictability in ETF Returns
Jon Fulkerson, Bradford D. Jordan
The Journal of Beta Investment Strategies May 2013, 4 (1) 23-31; DOI: 10.3905/jii.2013.4.1.023

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Reading Tomorrow’s Newspaper: Predictability in ETF Returns
Jon Fulkerson, Bradford D. Jordan
The Journal of Beta Investment Strategies May 2013, 4 (1) 23-31; DOI: 10.3905/jii.2013.4.1.023
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