@article{5963071eabfa427390ba7926c3bfa51b,
title = "Local demand shocks, excess comovement and return predictability",
abstract = "I investigate the importance of local demand shocks on excess comovements and return predictability for 4560 twin-pairs of Exchange-Traded Funds (ETFs) from 15 country-pairs. The returns on ETFs traded in the same country comove excessively with one another. These comovements are stronger for funds with greater liquidity and more competitors in the local market. In contrast, comovements are not materially different among ETFs that are attractive to fundamental (factor) investors. A local measure of mispricing, based on price-deviations between ETFs and their foreign peers, strongly predicts ETF return reversals. Betting against local mispricing yields significant abnormal returns of up to 20 percent per year after trading costs.",
keywords = "Arbitrage, Comovement, Correlated demand, Mispricing, Preferred habitat, Return Predictability",
author = "Broman, {Markus S.}",
note = "Funding Information: The article is based on my dissertation at the Schulich School of Business-York University. I am grateful to the members of my dissertation committee, Kee-Hong Bae, Yisong Tian, and especially Pauline Shum (the chair), for their guidance and encouragement. I also thank Geert Bekaert (the editor), Susan Christoffersen, Ming Dong, Andras Fulop, Mark Kamstra, Andrew Karolyi, Michael Keefe, Liang Ma, Debarshi Nandy, David Ng, Carol Osler, Marcus Painter, Andrei Semenov, Tong Yu and two anonymous referees, as well as seminar participants at Cornell University – Dyson School, Brandeis University, York University, the 2015 Financial Management Association conference, the 2015 Northern Finance Association conference, the 2017 Midwestern Finance Association conference and the 2018 Eastern Finance Association conference for many helpful comments and suggestions. Research support from the Schulich School of Business, in the form of the International Graduate Student Fellowship, is gratefully acknowledged. Responsibility for any errors or omissions, is of course, entirely mine. Funding Information: The article is based on my dissertation at the Schulich School of Business-York University. I am grateful to the members of my dissertation committee, Kee-Hong Bae, Yisong Tian, and especially Pauline Shum (the chair), for their guidance and encouragement. I also thank Geert Bekaert (the editor), Susan Christoffersen, Ming Dong, Andras Fulop, Mark Kamstra, Andrew Karolyi, Michael Keefe, Liang Ma, Debarshi Nandy, David Ng, Carol Osler, Marcus Painter, Andrei Semenov, Tong Yu and two anonymous referees, as well as seminar participants at Cornell University ? Dyson School, Brandeis University, York University, the 2015 Financial Management Association conference, the 2015 Northern Finance Association conference, the 2017 Midwestern Finance Association conference and the 2018 Eastern Finance Association conference for many helpful comments and suggestions. Research support from the Schulich School of Business, in the form of the International Graduate Student Fellowship, is gratefully acknowledged. Responsibility for any errors or omissions, is of course, entirely mine. Publisher Copyright: {\textcopyright} 2020 Elsevier B.V.",
year = "2020",
month = oct,
doi = "10.1016/j.jbankfin.2020.105910",
language = "English (US)",
volume = "119",
journal = "Journal of Banking and Finance",
issn = "0378-4266",
publisher = "Elsevier",
}