Originally Posted by Olav23
they generally revert to a mean.
So, my thinking is, short the ETF, buy the closed end fund (when at a discount) and wait to revert or the opposite if at a premium. This seems like a riskless arbitrage technique.
Have you noticed cef's which are trading at a much larger discount than their mean historical discount?
It seems to me that discounts today aren't so large compared to their mean.
There are people who try arbitrage like you mention. So, there is competition.
Especially if you want to short the cef when at a premium. You might not find any shares to short.
If you're holding the cef while shorting an etf, you're paying the cef's ER. you also run the risk of a rights offering, which will cost you (and all shareholders) in investment bank fees, and probably make the discount even larger.