PT - JOURNAL ARTICLE AU - Jon A. Fulkerson AU - Susan D. Jordan AU - Denver H. Travis TI - ETF Arbitrage and Daily Cash Flow AID - 10.3905/joi.2021.1.216 DP - 2022 Mar 31 TA - The Journal of Investing PG - 98--121 VI - 31 IP - 3 4099 - https://pm-research.com/content/31/3/98.short 4100 - https://pm-research.com/content/31/3/98.full AB - This article examines ETF creations and redemptions around price deviations and finds that the expected arbitrage trades are relatively rare in a broad sample of equity index ETFs. In the absence of these trades, price deviations persist much longer. Creation and redemption activity appears to be constrained when exchange conditions would lead to a costlier arbitrage trade, and the size of the price deviations mainly impact the likelihood rather than the amount of trading. The authors also find some evidence that creations and redemptions are less likely to trade on price deviations when they would be required to trade the underlying stocks against broad market movements. Their results suggest that several factors may discourage the built-in ETF arbitrage mechanism and that investors may receive poorer trade execution in these conditions as a result.