Exchange-traded fund

Introduction
An exchange-traded fund, or ETF, is an investment vehicle traded on a stock exchange in the same way as a stock. ETFs, however, are like mutual funds in that they hold a collection of assets, usually stocks and bonds. Unlike open-ended mutual funds, ETFs can trade at a premium or discount from their net asset value (NAV). However, large-enough differences allow institutional investors to perform arbitrage by swapping blocks of securities for ETF shares. In practice this means that the difference between price and NAV is generally very small.

Costs

 * Commission: the up-front charge by your broker to buy or sell a stock or ETF.
 * Bid-ask spread: the price difference between what a seller asks and what a buyer offers for a stock or ETF.
 * Premium and discount: the difference between the trading price and the NAV of an ETF.
 * Expense ratio: the annual management fee for a mutual fund or ETF expressed as a percentage. It is charged directly to the fund/ETF.

The American Stock Exchange web site lists the daily closing bid-ask and premium-discount information for many popular ETFs.

ETF vs. Mutual funds

 * Calculate and compare costs for Vanguard ETFs and mutual funds
 * To ETF or Not to ETF by Rick Ferri

Academic Papers

 * Birdthistle, William A., "The Fortunes & Foibles of Exchange-Traded Funds: A Positive Market Response to the Problems of Mutual Funds" . Deleware Journal of Corporate Law (DJCL), Vol. 33, No. 1, 2008 Available at SSRN: http://ssrn.com/abstract=1013614
 * Huang, Jennifer C. and Guedj, Ilan, "Are ETFs Replacing Index Mutual Funds?" (March 31, 2008). Available at SSRN: http://ssrn.com/abstract=1108728