The effect of liquidity and arbitrage on the price efficiency of Chinese ETFs
研究了中国股票ETF价格偏差的决定因素，发现ETF流动性和套利活动能提升价格效率，且机构持股比例高时效果更明显；深交所和上交所引入做市商以及深交所放松套利限制均改善了价格效率。
Abstract We study the potential factors that determine the large and persistent price deviations in Chinese equity exchange‐traded funds (ETFs). Our results suggest that ETF liquidity and arbitrage activity are positively correlated with ETF price efficiency, and the relation is more pronounced with higher institutional ownership. We also evaluate the effect of two exogenous shocks in the Chinese market. Using a policy change that added market makers to ETFs on the Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SSE), we find that market makers improve price efficiency and that the impact is stronger for ETFs with lower liquidity. We also exploit a change in trading rules on the SZSE and show that the relaxation of arbitrage restrictions improves price efficiency. Altogether, these findings provide evidence that lack of liquidity, due to the unique market structure and regulations of the Chinese market, contributes to price inefficiency of Chinese ETFs.