For ETF, it seems the price is determined by ask/bid and trading price.

Can it be inefficient, that the trading price deviates from the underlying tracked index?

For example, intentionally buy and sell the ETF, in a large volume, at a pretty low price.


An ETF can be inefficient, however, it is structured to be efficient. Every ETF has Authorized Participants (AP) who basically profit off of the difference until the difference is 0. While a large order will move the ETF slightly off of the NAV, the APs should move to correct it as it is profitable for them to do.

  • Why is it profitable for APs to correct it? Is this the basic assumption: people have the consensus that ETF should track the index, so when it deviates from the index, all people will correct it, so that APs can arbitrage? – I Wonder May 30 '19 at 3:56
  • 1
    The APs can buy the underlying assets at the NAV price and sell them at the ETF price which is higher. – Jake Freeman May 30 '19 at 12:25

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