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Overlapping ETF: Pair trading between two gold stocks

Author

Listed:
  • Bell, Peter N
  • Lui, Brian
  • Brekke, Alex

Abstract

The purpose of this paper is to propose a trading strategy for overlapping ETF and calculate the profitability using real price data. For two overlapping ETF that are designed to provide the same intraday percentage change, the difference in percentage changes is a measure of mispricing. This mispricing is the central focus of the paper. The premise of the paper is that mispricing can take large positive or negative values, but it will always come back to zero. This assumption reflects our view that ETF are generally priced correctly but will occasionally deviate.

Suggested Citation

  • Bell, Peter N & Lui, Brian & Brekke, Alex, 2012. "Overlapping ETF: Pair trading between two gold stocks," MPRA Paper 39534, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:39534
    as

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    File URL: https://mpra.ub.uni-muenchen.de/39534/1/MPRA_paper_39534.pdf
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    References listed on IDEAS

    as
    1. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
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    More about this item

    Keywords

    Pair trading; ETF; Gold; Mispricing;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

    Statistics

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