Filings, Insiders & OwnershipExtended setExperimentalNew

ETF Premium Discount Revert

Updated dailyData needs: highlong onlyshort only

2016

Madhavan, A. & Sobczyk, A. (2016). "Price dynamics and liquidity of exchange-traded funds." Journal of Investment Management 14(2), 1-17.

Read the paper →

In plain terms

When an ETF trades at a premium or discount to its underlying basket, the gap closes within 1-3 days as arbitrageurs step in - we fade the deviation.

How it works

ETF close-price deviation from NAV is transient - authorized participants arbitrage it back in 1-3 days. Sharpest in mid-liquidity ETFs (sector/factor sleeves), weakest in SPY/QQQ. We approximate NAV via snapshot-weighted constituent close.

Live results

0 times picked on its own · 1 times inside a blend (1 beat the stock) · updated 2026-07-06

This strategy is a frequent ingredient in blends that combine a few strategies on one stock. It has contributed to 1 such blended picks (1 of which beat simply holding the stock). Picking it on its own is only one of the ways it shows up.

How its picks scored vs. buy & hold

Each pick is graded on a recent year it was never tuned on, against simply owning the same stock

Where its edge concentrates

Share of picks in each company-size group that beat buy & hold

How often it trades

Active vs. patient. Bars on the left mean it waits for rare setups; bars on the right mean it trades often

Return vs. buy & hold

How much each pick beat or trailed simply owning the stock over the test year (extreme microcap moves trimmed)

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Data dependencies

Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.
ETF holdings
ETF holdings and N-PORT constituent-weight panel.

Expected edge

Reported return: 30-80 bps over 1-3d (modeled)
Tested over: T+1 to T+3d

Madhavan-Sobczyk 2016 prem/disc mean-revert; internal target 30-80 bps over 1-3d.

Example tickers where this is likely to fire

IWM ARKK IBB HYG SMH

Illustrative only, the signal fires based on the live data, not a fixed list.

Related families

ETF Creation Redemption FlowFilings, Insiders & Ownership

When ETFs collectively buy more shares of a stock (creation units), the flow pressure tends to drift the price up over weeks; redemption flows do the opposite.

Shared-ETF ContagionFilings, Insiders & Ownership

When many ETFs increase exposure to the same stock, we treat that as flow pressure and go long.

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