etf premium discount revert
What it checks
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.
Mechanism
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.
Signal rule
Daily NAV proxy from N-PORT weights x current constituent close; 60d rolling z of log(etf_close/nav_proxy); |z| >= 1.0 -> fade direction; hold 1/3d.
Data dependencies
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
etf_holdingsETF holdings and N-PORT constituent-weight panel.
Expected edge
- Paper alpha
- 30-80 bps over 1-3d (modeled)
- Paper window
- 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
Illustrative only — the signal fires based on the live data, not a fixed list.
Related families
etf creation redemption flowETF flowsETF creation-unit flows transmit non-fundamental demand into constituents (Petajisto 2017). Ben-David et al 2018 show flow-driven ETF demand predicts short-horizon drift. We proxy flow via delta shares-held across N-PORT snapshots.
etf comembership contagionETF flowsAggregate ETF constituent-weight changes proxy flow pressure and common-ownership contagion. Stocks receiving broad ETF weight increases are held long.
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