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if an ETF has a slight tracking error with regards to the index it is tracking, shouldn't that be easy to arbitrage?

What Arbitrage strategy could be used, and why isn't the tracking error already arbitraged away?

Bid/Ask when trading ETFs?

  • 2
    Are you looking for this? – Kevin Jan 22 at 22:49
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    Sure, anyone can buy 500 different stocks and sell the SPY (or vice versa) to arb a few nickels. Size matters?? :->) – Bob Baerker Jan 22 at 23:22
  • I would imagine that for a typical individual investor, the cost of carrying the short side would make this type of trading unprofitable. – Nick R Jan 22 at 23:37

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