The efficiency of international information flow: Evidence from the ETF and CEF prices.(Report) Hughen, J. Christopher; Mathew, Prem G.

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Hughen, J. Christopher ; Mathew, Prem G.
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International Review of Financial Analysis
Exchange-traded funds -- Analysis; Financial markets -- Analysis; Foreign securities -- Analysis
To link to full-text access for this article, visit this link: Byline: J. Christopher Hughen (a), Prem G. Mathew (b) Keywords: Exchange-traded funds; Closed-end country funds; Market efficiency; International market integration 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. Author Affiliation: (a) Reiman School of Finance, Daniels College of Business, University of Denver, Denver, Colorado 80208, United States (b) Department of Finance, College of Business, Oregon State University, 424 Bexell Hall, Corvallis, Oregon 97331, United States Article History: Received 28 March 2008; Revised 30 December 2008; Accepted 31 December 2008
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