The authors explained how the underlying indexes of bonds do not trade intraday as do underlying indexes of stocks and bond ETFs. Their study explained the extent to which premiums/discounts developed and persisted; and the effects on return and liquidity measures.
They observed large changes in returns unrelated to market changes. Premiums and discounts persist longer and are of greater magnitude than customarily exemplified by stock ETFs. Accordingly, adroit investors should be able to capitalize on the larger premiums and discounts and thereby earn higher returns.
They documented large returns for extreme premium/NAV ratio ETFs.
They analyzed the prior month's premiums and discounts, and in line with their persistence observances found the results of prior months to be highly significant.
The authors refused to declare an arbitrage strategy; nevertheless, they recommended that buying bond ETFs that trade at substantial discounts can enhance an investor's return. This recent study suggests possible bond ETF investment strategies in this low interest rate market.
Source: Fulkerson, J. A., Jordan, S. D., & Riley, T. B. (2014). Predictability in Bond ETF Returns. The Journal of Fixed Income, 23(3), 50-63.
Introducing an ETF that covers the same underlying assets as a CEF creates multiple predicable effects on the CEF.
ETFs may not match their price to their net asset values. The investor should take caution with certain funds.
Investors should take caution with some exchange traded funds, ETFs.
Competition among etfs and mutual funds can be improved. It is noted that when mutual funds and etfs follow the same indexes returns are indistinguishable.
Momentum and Contrarian strategies constitute anomalies used by investors seeking abnormal returns. Abnormal returns range from 8.4 to 13.5 percent over 4 to 39 week holding periods.
Since ETFs are derivative securities, their sponsors have distinct choices to make about the selection of the underlying indexes upon which to base theirl ETFs