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I invest in a couple of ETFs in Europe and regularly I observe results such as:

  • VUSA (Vanguard's European S&P500 ETF) went up 0.41% today;
  • the S&P500 went down 0.68%;
  • the EUR/DOL went down 0.13%.

If the ETF followed precisely the index, it should have gone down since both the index and the EUR/DOL went down. This should mean that the market maker will force the price to go down tomorrow. Can't we use this to arbitrage? (We could short sell the VUSA today, for example.)

I really think that my reasoning is wrong since otherwise we really could make millions like that. But I don't know where I'm wrong.

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  • How often is "regularly"? Do historical data points show the correction the next morning? – TTT Nov 20 '20 at 21:44
  • @TTT I frankly don't know. All that I know is that a correction "happens". I know that in large etfs (such as SPY), the price of the ETF follows very precisely the index (up a few minutes of difference). But I think that in smaller ETFs the correction can take some more time. – Gabriel Nov 20 '20 at 21:52
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    This is kind of funny, but it's possible that today's rise was actually a correction from yesterday's fall when the S&P went up. ;) – TTT Nov 20 '20 at 21:58
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    "it should have gone down since both the index and the EUR/DOL [properly EUR/USD] went down" -- there is some confusion -- this seems to assume that EUR/USD movement tends to make a EUR-denominated fund move in the same direction. Rather, a EUR-denominated fund moves in the opposite direction (EUR/USD weakness boosts EUR-denominated prices). This is not sufficient to explain the discrepancy, but should be noted. – nanoman Nov 21 '20 at 9:52
  • Are the percentages you give referring to the same duration? If trading for an European ETF closes at 5 pm but S&P assets are traded until 10pm (in the same time zone), both have some overlap during which the ETF should follow the index efficiently. But the S&P500 changes contribute to different trading days of the ETF. You can't profit from this very much because the opening price of the ETF at the next day isn't the previous close, but is determined through an opening auction. Your competitors also know how the index developed over night. – amon Nov 22 '20 at 8:01
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Try this answer, replacing "US ETF tracking Chinese index" with "European ETF tracking US index".

The implication is that the market has a fair price at every moment, and arbitrage is not possible (for anyone but the fastest traders), once you take into account that stale quotes (like a closing price from hours ago) are not prices you can trade at.

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