Hey, I was wondering if there are any studies on Price - NAV as an indicator as to whether or not a fund is overvalued/undervalued and if the price will eventually correct itself? For this I am primarily interested in passive funds. Also, I was wondering if there are any studes on Price - NAV as an indicator for market sentiment? For this it can be on any type of fund. Thanks!
Here's my 2 cents , AFAIK ETF's that don't track closely the NAV are often niche ETF's or ETF's from second tier providers (i.e other than the big 3 in the US ) . So whether the price tracks NAV may have more to do with the liquidity and popularity of the product rather than value .
There are delta one desks at almost every bank. http://en.wikipedia.org/wiki/Delta_One ETFs arb out quick. They all track well. You will also find that they trade at a premium/discount to the NAV ALL THE TIME and that the premium/discount is most often directly related to the cost of creation/redemption +/- other fees & expenses related to cash or in-kind basket delivery. As for market sentiment, guys get more or less aggressive on the amount they try to arb depending on where they think things are going but that's nothing a normal trader could see or would have access to. 99.9% of traders can't even price these things properly.