Spread arbitrage between ETFs

• Main Authors: Wan-chi Chang, 陳琬琪
• Other Authors: Wu-chang Luo
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/08703119149287071403

碩士 === 中國文化大學 === 國際企業管理研究所 === 97 === Spread arbitrage between ETFs Student: Wan-chi Chang Advisor: Prof. Wu-chang Luo Chinese Culture University ABSTRACT Spread arbitrage is to used the same commodity that against law of one price to making arbitrage, but a necessary condition for arbitrage is the availability of an exact or close substitute. The thesis describes the mechanism of Exchange Traded Fund(ETF) spread arbitrage and demonstrates that spreads between ETFs in Taiwan can be constructed so as to result in riskless arbitrage. The spreads will not deviate without bounds and will revert to the equilibrium level in the long-run. The variables used P-Shares Taiwan Top 50 Tracker Fund and Fubon MCSI Taiwan ETF, P-Shares Taiwan Electronics Tech ETF and Fubon Taiwan Technology ETF, P-Shares MSCI Taiwan Financials ETF and Fubon Taiwan Finance ETF for the trading-rule simulations. The conclusions from researching are in the following: all ETFs are nonstatio-nary I(1) processes. On the contrary, the null hypothesis of ADF unit root is rejected for the first-order differences of each series at the 1%, 5% and 10% significance level, the differences of prices series are stationary I(0). The long-term relationships among ETFs are detected by cointegration tests. The prices of related ETFs in this study are found to be cointegrated and the spread derived from the cointegration relationships are mean-reverting. The trading-rule simulations suggest that the average profit from spread arbitrage is statistically significant after transaction costs of spread arbitrage are very attractive. Key Words: ETF, spread arbitrage, unit roots test, cointegration