Markets · 6 pages · 12 min
Why an ETF's price can stray from its basket
The ETF share has its own market price, which can drift from the value of the holdings.
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From the opening
An ETF's market price is set by trading in the share, while the basket value is the marked value of the holdings inside the fund. Those two numbers can separate, and the gap is called a premium when the share trades above the basket or a discount when it trades below. The opening covers share price and basket differ, premiums sit above the basket, and closed markets leave stale values.
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Inside
- Share price and basket differ
- Premiums sit above the basket
- Closed markets leave stale values
- Arbitrage needs a tradable basket
- Where the idea stops applying
- A distinction worth keeping
Sources
- ETF premium and discount
- Creation and redemption arbitrage