Q. Trading hours in Asia (NYSEARCA:VPL) and Europe (NYSEARCA:FEZ) don’t coincide with the U.S., so how are ETFs that own foreign securities still able to closely track their indexes even when trading in these securities may be closed?
A. Price discovery is an around the clock 24-hour process and capital markets constantly add information that can change the underlying value of stocks held in ETFs.
To the extent a market is open, an ETF will reflect the most current price perspective. On the other hand, if it’s closed then prices will reflect a consensus view or opinion of the market based upon all the available information at that moment.
For example, despite the fact that the Chinese equity market (NYSEARCA:GXC) is closed, U.S. investors will have an opinion on whether or not closing prices are an accurate reflection of fair value. If information has caused them to doubt a price, they will bid up or down accordingly.
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