TY - JOUR T1 - Premiums on Exchange-Traded Funds JF - ETFs and Indexing SP - 70 LP - 74 VL - 2001 IS - 1 AU - J. Christopher Hughen Y1 - 2001/09/21 UR - http://guides.pm-research.com/content/2001/1/70.abstract N2 - If exchange-traded fund prices diverge from net asset values, institutional investors may arbitrage the shares through an in-kind creation/redemption process sponsored by the fund company. This study analyzes the size and duration of exchange-traded fund premiums and the efficacy of arbitrage in reducing these premiums. While premiums are observed, they are rarely persistent. The fund-facilitated arbitrage process is generally successful in aligning price and value. However, even small premium fluctuations can mean the difference between a profit and loss for the short-term investors who dominate the trading of these securities. ER -