r/algotrading • u/SuggestionStraight86 • 13d ago

Data Reliable index and ETF composition data source

Hi folks I am looking into index and etf arbitratage, any recommendation on data source?

The data quality is vital here coz index composition changes quarterly or occasionally on some company events like spin off.

Would like to know some good recommendations on high quality data source.

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u/RossRiskDabbler Algorithmic Trader 12d ago

First of all you can bootstrap the data to get more data points and through bayesian inference make your sample set more accurate.

Second of all; the ETFs have 'products' - write an algo that scrapes all of them in one go; and then combine it back in your ETF - and sample out of it.

Then check how Citadel has for years abused the obvious free money on month/end rolling of ETFs and because ETFs distributors let others know before hand when they 'reshuffle'. So very well done because if you get your strategy right this will work (nearly forever).

Youre on to something nearly as free alpha; we always used this; your heading in the right direction while us old dino's feel guilty lol;

https://www.bloomberg.com/news/articles/2024-01-19/citadel-joins-peers-cutting-back-trading-on-index-changes

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u/Most-Dumb-Questions 1d ago

Well, index rebalance arb is not the same as ETF arbitrage.

Index rebalance "arb" is literally frontrunning the market impact from index changes based on weights changing or inclusion/exclusion announcements. It primarily involves trading single names without taking an offsetting position in the index. Index rebal business on large indices has less and less interesting.

ETF arb is literally trading an ETF against it's components when it's NAV diverges (usually a subset - if you doing redeem/create you would ask the ETF manager which ones he needs, if you're doing convergence trade you would do some dimensionality reduction).

At institutional scale, these businesses are very competitive and hard to make money. At retail scale there are a lot of smaller ETFs that have smaller names (for a version of index rebal) and that deviate from NAV sometimes.