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Even ETFs can have similar issues to mutual funds when the underlying asset is illiquid. ETFs will trade at an immense discount as the fund is sold faster than
by Blackthorn 10y ago
Even ETFs can have similar issues to mutual funds when the underlying asset is illiquid. ETFs will trade at an immense discount as the fund is sold faster than the underlying can be shorted. This happened to $JNK recently.
- eru 10y agoHow long did that last? Longer than a day? (Seems like a huge arbitrage opportunity, otherwise.)
- Blackthorn 10y agoIt's not really accurate to call it arbitrage if you can't simultaneously short the underlying. You'll be looking at something (imo) not unlike pin risk. And just like pin risk...well, it's risky. JNK wasn't as bad as I remember, according to the stats on Morningstar it had a discount of 1.15% at the worst.
- eru 10y agoI meant in a more general sense: it's closer to something uncertain like statistical arbitrage. Thanks for looking up the numbers. 1.15% seems entirely reasonable compared to having your money locked up.