The efficiency of international information flow: Evidence from the ETF and CEF prices |
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| Authors: | J. Christopher Hughen Prem G. Mathew |
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| Affiliation: | 1. University of KwaZulu-Natal, Durban 4041, South Africa;2. Durham University Business School, Mill Hill Lane, Durham DH1 3LB, UK;3. Stirling Management School, University of Stirling, Stirling FK9 4LA, UK;4. University of Liverpool Management School, University of Liverpool, Chatham Street, Liverpool L69 7ZH, UK;1. International Institute for Financial Studies, Jiangxi University of Finance and Economics, China;2. Department of Finance, La Trobe Business School, La Trobe University, Bundoora, Victoria 3086, Australia |
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| Abstract: | While similar in their trading and organization, closed-end funds (CEFs) and exchange-traded funds (ETFs) differ in their liquidity and ease of arbitrage. We compare their price transmission dynamics using a sample of funds that invest in foreign securities and are most likely to show the deficiencies in the manner in which they process information. Our analysis shows that ETF returns are more closely related to their portfolio returns than are CEF returns. However, both fund types underreact to portfolio returns but overreact to domestic stock market returns. A simple trading strategy using these results is profitable with roundtrip trading costs less than 1.38% for CEFs and 0.71% for ETFs. |
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