Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 1, 2008 erstellt
Description:
This paper explores the dynamics between the returns process of an index exchange traded fund (ETF) in a market subject to price movement or price limit constraints. Using the SSE 50ETF, which is comprised of the 50 largest companies by market capitalization listed on the Shanghai Stock Exchange (SSE), we show that price discovery moves from the SSE 50 index to the SSE 50ETF when a significant portion of the index component stocks reach daily price limits. Further, regression analysis shows that while index ETF returns respond on the day when price limits are reached, index returns are impacted on the day following the price limits hits. Lastly, the larger the premium of the ETF price above the net asset value (NAV) of the index and the higher the proportion of price limit hits, the greater the subsequent reversal of ETF returns. Our results show index ETFs play an important role in the price discovery process of the underlying component stocks in the presence of regulatory-imposed pricing constraints