Banking on Trouble?
The last month or so has seen a gut-wrenching fall in oil prices (and most asset prices in general). Declines so far have been (relatively) orderly – a 5% move for oil for example is par for the course – but some strange things have been happening in ETFs and ETNs . They should trade at fair value – that is, at a zero premium to the value of their assets. If they didn’t, there would be an opportunity for risk-free profits (known as arbitrage). But, as this Barron’s article relates, this has not been happening. First, let’s remind ourselves what an ETF is and what it does…