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ANALYSIS OF THE PERFORMANCE OF THE DIAMONDS ETF AROUND A GLITCH IN THE COMPUTATION OF THE DOW JONES INDUSTRIAL AVERAGE INDEX

Stoyu I. Ivanov

San Jose State University, USA

 

ABSTRACT

In this paper I examine the pricing deviation, pricing premium and discount, and tracking error of the Diamonds around the event of a glitch in the computation of the Dow Jones Industrial Average on February 27, 2007. That day a technical error in the computation of the Dow Jones Industrial Average caused a shock in the financial markets. This event provides for an excellent laboratory to examine the behavior of an ETF in extreme market conditions. I find that the pricing deviation and tracking error of this ETF increase and experience high volatility for a brief period of time after identifying the problem.

Key words: ETF, Pricing Deviation, Tracking Error, Technical Glitch

JEL: G01, G14