Federal ID: 91-6001537
ISSN: 0022-1090 (Print) | 1756-6916 (Online)
ETF Sampling and Index Arbitrage
Jonathan Brogaard, Davidson Heath, and Da Huang ♦ This paper shows that exchange-traded funds (ETFs) “sample” their indexes, systematically underweighting or omitting illiquid index stocks. As a result, arbitrage activity between the ETF and its index has heterogeneous effects on underlying…