Country Funds - Their ETF Characteristics

Since ETFs are derivative securities, their sponsors have distinct choices to make about the selection of the underlying indexes upon which to base their ETFs. Accordingly, Ackert and Tian chose to be the first investigators to examine the cross-market liquidity effects for country ETFs. 

Their chief findings are that although the fund premiums are typically small, the variations among the country ETFs can be quite substantial. Generally, their empirical research indicates a direct relationship between premium and liquidity. 

They observe wide variations in the distributions of premiums across time and funds. They predictably find more variations within international funds than within U.S. funds. 

Their results indicate that significant mispricing pervades country funds. Country funds allow investors to zero in on countries they are interested in by going either long or short. 

However, this research suggests that caution must be considered for investments in specialized country funds. Indeed, the authors find persistent mispricing that is related to momentum, illiquidity, and size effects. 

In summarizing, they emphasize that country funds and their home markets have lower liquidity relative to U.S. funds and markets.

http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0416.2008.00144.x/abstract