Pricing Inefficiencies and Feedback Trading: Evidence From Country ETFs

In view of the established presence of wide deviations of US-listed country ETFs’ prices from their net asset values, we study whether feedback trading exists in this category of ETFs and whether it varies with their premiums and discounts. Using a sample of nineteen country ETFs for the 2000-2019 window, we find that feedback trading is present in several of them, particu-larly those targeting Asia Pacific markets. Feedback trading varies with the sign (i.e., premiums and discounts), level, and nature (observed/forecast) of these deviations, as well as prior to and after the outbreak of the 2008 crisis. Of particular note is the widespread feedback trading re-ported across the vast majority of country ETFs on those days for which there exist successful predictions of premiums/discounts, a fact suggesting that country ETFs’ premiums/discounts contain useful information as per their trading dynamics.