I noticed that Prices of etfs that invest in international markets are fluctuating during US trading hours. How is that possible given that the international markets are closed during that time and hence the underlying security prices are no changing. Anyone have insights as to how this works?
Two factors worth considering here, in addition to futures markets, are as follows :
Just as in US markets, where after hours trading continues after the official market close, the same applies to international securities. For example, US companies tend to announce their results for a given reporting period after the official market close. This does not stop those with access to after hours trading to trade on the back of such announcements. The same principle of after hours trading will apply to international markets. Also, many of the large international companies list on US markets, though obviously not all.
The other point is that international ETFs traded in the US (or elsewhere) will trade on perceptions of what the next trading session holds. For example, if the Fed were to hike interest rates unexpectedly while the Eastern markets and European markets were closed, one would expect that the markets would price in the perceived effects on those markets of such a move by the Fed. Otherwise, US investors would have an unfair advantage over the ETF providers by forcing them to buy or sell at out-of-date net asset values.