Arbitrage opportunities between ETFs and their underlying portfolio

This article, is going to study arbitrage opportunities between exchange-traded funds (ETFs) and their underlying portfolio. Therefore, we extract intraday data, and then carry out our research methodology to examine  arbitrage opportunities. Also, we study price and order flow behavior around the opportunities. We chose two Iranian ETFs named PALAYESH and DARA YEKOM as our research sample. In this article four variables including ETF return, underlying portfolio return, ETF order flow, and underlying portfolio order flow will be used to test our findings. After extracting data, we study the sigificant relationship between ETFs and their underlying portfolio by the Vector Autoregressive (VAR) model estimation. Finally, we found evidence about the divergence of ETF and its underlying prices and observe that mispricing correct through time by arbitrage mechanism