Premiums, discounts and feedback trading: Evidence from emerging markets' ETFs

- We test whether ETF premiums/discounts induce feedback trading in emerging markets.
- We find significant feedback trading in ETFs.
- Feedback trading becomes more widespread as the premiums increase.
- The relation between premiums and feedback trading differs across pre-post crisis.

This study investigates the extent to which ETFs' premiums and discounts motivate feedback trading in emerging markets' ETFs. Using a sample of the first-ever launched broad-index ETFs from four emerging markets (Brazil, India, South Africa and South Korea), we produce evidence denoting that feedback trading grows in significance in the presence of lagged premiums. The significance of feedback trading becomes more widespread across our sample's ETFs as the lagged premiums grow in magnitude, with evidence also suggesting that the effect of lagged premiums over feedback trading varies prior to and after the outbreak of the recent global financial crisis.