Study of Exchange-Traded Fund Products for American Stock Exchange, NASD, and American Express

An Analysis Group team conducted an 18-month study on exchange-traded funds (ETFs), which was presented at a symposium hosted by the American Stock Exchange (AMEX). ETFs typically track domestic market indices such as the S&P 500 and Nasdaq 100, as well as international indices. Unlike mutual funds that track market indices (such as the Vanguard 500), ETFs can be traded during the day and shorted. In our research, which was underwritten by AMEX, we examined whether the prices for these products deviated in a systemic fashion from their underlying value. We studied 21 domestic and 21 international ETFs, and examined both end-of-day and intraday price-to-value deviations. Our findings showed that for the domestic ETFs, the average price-to-value deviation was small – almost zero – and that large deviations were very short lived. For the international ETFs, however, the average deviation was typically positive, with large deviations declining after several hours. However, for both domestic and international ETFs, the size of the deviations was considerably smaller than the ETF's bid-ask spreads. Analysis Group has also conducted studies of ETFs for the National Association of Securities Dealers and American Express.