A Research Of China’s ETFs Arbitrage Strategies

Investors always want to get the most profits with the lowest costs. With the help of the low fees, high efficiency and low risk, ETF has became the most popular passive invested index fund. In this paper, we first talk about the arbitrage strategies of China ETFs, and analyze whether each strategy is suitable to invest. Then we use the Co-integration Arbitrage method as well as the pairs trading method to analyze how each strategy behaves in the On-hand Merchandise Combination and the ETF pairs trading. We have several conclusions.1) The arbitrage space in the On-hand Merchandise Combination is very small, and it is because that the tracking error of ETFs is very small, so there might not be a remarkable difference between IF prices and ETF prices. In addition, the existence of many arbitragers will force the anomaly of price difference to reversion.2) We model the pairs trading on the ETF which can be loaned in the market. We find that there is some profit in the strategy.3) We model a three ETFs Co-integration model and gain a lot profit. The strategy has a very high winning rate and very low maximum drawback ratio.4) We compare this three ETFs model to the three pairs trading model, and we find that the first model can exploit larger arbitraging opportunities and arbitrage spaces than the second one.