Purpose Prior literature has shown deviations between ETF prices and their net-asset-value (NAV) to exist. Fulkerson and Jordan (2013, p. 31) question “if there exists a true tradeable strategy” to exploit these inefficiencies. The purpose of this paper is to implement a profitable daily long-short trading strategy based on price/NAV information and explicitly accounting for trading costs. Design/methodology/approach For a sample of European sector ETFs, the authors analyze gross and net returns of a long-short trading strategy in the capital asset pricing model and Fama-French three-factor model. Findings The authors document positive gross excess return for the long-short trading strategy in all sample periods, but net excess returns to be positive only between 2008 and 2010. Research limitations/implications The results document a profitable long-short trading strategy exploiting deviations between ETF prices and NAV and highlight the impact of trading costs in ETF markets. Due to the limited availability of historic trading cost data, the research uses a comparatively small sample size. Practical implications The net profitability of long-short trading in ETFs is only found in times of high uncertainty in the stock market. Originality/value The inclusion of trading costs enables a detailed comparison between gross and net returns in ETF trading, addressing potential limits to arbitrage.

Este estudio evalúa empíricamente la eficiencia en la valoración de varios ETFs latinoamericanos, expresada en desviaciones de sus precios de mercado frente a los valores liquidativos subyacentes. Se cuantifican tales ineficiencias y se implementa una estrategia de negociación verificada por regresiones basadas en el CAPM y el Modelo Fama-French. Los resultados discrepan con la Hipótesis de los Mercados Eficientes y son mejor explicados por aspectos de las finanzas comportamentales. Finalmente, se examina cómo las desviaciones influyen sobre la decisión de creación o redención de ETFs, mediante un análisis de regresión logística. Los resultados evidencian que los participantes autorizados reaccionan ante las ineficiencias realizando transacciones en el mercado primario.