Limited Time Offer: Save 10% on all 2021 and 2022 Premium Study Packages with promo code: BLOG10    Select your Premium Package »

ETFs Premiums and Discounts

ETFs Premiums and Discounts

The value of an ETF is obtained from measuring its net asset value (NAV) at the closing of each trading day. If the ETF has a higher market price relative to the net asset value, it is said to be trading at a premium. On the other hand, if the ETF’s market price is below the net asset value, it is said to be trading at a discount.

Moreover, the value of an ETF can be measured by its intraday net asset value (iNAV) based on the securities in the creation basket for that trading day. Similar to NAV, an EFT trades at a premium when its market price is above the iNAV. Otherwise, it trades at a discount.

The discounts and premiums can be expressed mathematically as:

$$ \begin{align*} \text{End of day premium or discount }(\%) &=\frac{\text{ETF price}-\text{NAV per share}}{\text{NAV per share}} \\ \\ \text{Intraday ETF premium or discount }(\%) &=\frac{\text{ETF price}-\text{iNAV per share}}{\text{iNAV per share}} \end{align*} $$

Sources of EFT Premiums and Discounts

1. Timing Difference

Exchange closing times differ between the underlying securities and the exchange where the ETF trades. This makes NAV a poor fair value indicator for ETFs that hold foreign securities. For instance, the closing prices for US-traded EFTs are different from those of European stock since Europe is ahead by hours.

Unlike ETFs, bonds do not trade on an exchange; hence the issuers rely on bid prices because there are no true closing prices. Moreover, bond pricing model inputs sometimes reflect the price at which a dealer is willing to buy the bonds and the risk and cost to a dealer carrying the bonds in inventory. Here, the ETF’s closing price is often higher than the bid prices of the underlying holdings used to calculate NAV, making it appear that the ETF is at a premium.

However, during times of economic downturns, fixed-income ETFs with bigger trading volumes trade at discounts to the net asset value.

2. Stale Pricing

Stale price is the current price of an asset that does not reflect recently revealed or other available information. If the ETF has not traded in the immediate hours before the market closes, NAV may have changed significantly during those hours due to market movement. This would result in a premium or a discount if the market and corresponding NAV declined or increased sharply during the trading period.

Moreover, ETF prices may be a more accurate reflection than NAVs or iNAVs where the underlying market is closed, underlying securities are less liquid, and when the underlying market has time lags.


Consider an ETF with a share price of $42.55. Additionally, its net asset value and intraday net asset value are $30.11 and $36.13, respectively. Which of the following most correctly gives the intraday and end-of-day ETF premiums?

  1. Intraday ETF premium: 17.77%; End-of-day ETF premium: 41.32%.
  2. Intraday ETF premium: 15.09%; End-of-day ETF premium: 41.32%.
  3. Intraday ETF premium: 17.77%; End-of-day ETF premium: 26.44%.


The correct answer is A.

$$ \begin{align*} \text{Intraday ETF premium } (\%) & =\frac{\text{ETF price}-\text{iNAV per share}}{\text{iNAV per share}} \\ & =\frac{$42.55-$36.13}{$36.13}=0.1777=17.77\% \\ \\ \text{End-of-day ETF premium } (\%) & =\frac{\text{ETF price}-\text{NAV per share}}{\text{NAV per share}} \\ &=\frac{$42.55-$30.11}{$30.11}=0.4132=41.32\% \end{align*} $$

Reading 38: Exchange Traded-Funds, Mechanics and Applications

LOS 38 (e) Describe sources of ETF premiums and discounts to NAV.

Featured Study with Us
CFA® Exam and FRM® Exam Prep Platform offered by AnalystPrep

Study Platform

Learn with Us

    Subscribe to our newsletter and keep up with the latest and greatest tips for success
    Online Tutoring
    Our videos feature professional educators presenting in-depth explanations of all topics introduced in the curriculum.

    Video Lessons

    Daniel Glyn
    Daniel Glyn
    I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
    michael walshe
    michael walshe
    Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.
    Nyka Smith
    Nyka Smith
    Every concept is very well explained by Nilay Arun. kudos to you man!
    Badr Moubile
    Badr Moubile
    Very helpfull!
    Agustin Olcese
    Agustin Olcese
    Excellent explantions, very clear!
    Jaak Jay
    Jaak Jay
    Awesome content, kudos to Prof.James Frojan
    sindhushree reddy
    sindhushree reddy
    Crisp and short ppt of Frm chapters and great explanation with examples.