RT Journal Article
SR Electronic
T1 Mispricing and Trading Profits in Exchange-Traded Notes
JF The Journal of Investing
FD Institutional Investor Journals
SP 67
OP 78
DO 10.3905/joi.2014.23.1.067
VO 23
IS 1
A1 Dean Diavatopoulos
A1 Hélyette Geman
A1 Lovjit Thukral
A1 Colby Wright
YR 2014
UL https://pm-research.com/content/23/1/67.abstract
AB This article investigates whether a simple long–short weekly trading strategy based on mispricing among exchange-traded notes (ETNs) generates profits in excess of the S&P 500 Index over the sample period of June 6, 2006 to January 30, 2012. Ignoring transaction costs, liquidity, and short-selling constraints, the authors find the following: 1) Mispricing is prevalent among ETNs. They enter into 90 trades over our 295-week period using a mispricing threshold of 5% and requiring a minimum average daily volume of 20,000 shares. 2) Total returns to the authors’ strategy are significantly higher than the S&P 500, which had a total return of 3.70% over the same period. The strategy generated total returns ranging from 9% to 110% over a mispricing threshold range of 8% to 14%, depending on the study’s minimum daily trading volume requirements. 3) Nearly all the trades and all the profits from this strategy come from the short side of the portfolio. This is consistent with previous empirical work demonstrating that ETNs are more likely to be overpriced than under priced.TOPICS: Exchange-traded funds and applications, performance measurement