The discount behavior and volatility on exchange-traded funds (ETFs) trading in Chinese markets  were investigated from both theoretical and empirical perspectives. A theoretical model with heterogeneous beliefs and short-sale constraints was established to explain discounts on ETFs and their volatilities. The theoretical model conjures that ETFs in Chinese markets are more likely to trade at a discount relative to western developed markets and the volatility of an ETF is greater than that of its NAV. In addition, empirical results based on daily data from February, 2005 to December, 2012 validates the theory proposed.