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Exchange-traded funds, liquidity and volatility

Timothy A. Krause et al.

Applied Financial Economics2014https://doi.org/10.1080/09603107.2014.941530article
AJG 2ABDC B
Weight
0.63

Abstract

Given the exponential growth in exchange-traded fund (ETF) trading, ETFs have become a significant factor in the volatility generating process of their largest component stocks. A simple model of trading is developed for securities that are included in ETFs, and empirical support is provided for the model hypotheses. Volatility spillovers from ETFs to their largest component stocks are economically significant. These spillovers are increasing in liquidity, the proportion of each stock held by the fund, deviations from net asset value, ETF flow of funds and ETF market capitalization. The results are consistent with a positive volume–volatility relation and trading-based explanations of volatility, and are generally stronger for smaller stocks.

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https://doi.org/https://doi.org/10.1080/09603107.2014.941530

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@article{timothy2014,
  title        = {{Exchange-traded funds, liquidity and volatility}},
  author       = {Timothy A. Krause et al.},
  journal      = {Applied Financial Economics},
  year         = {2014},
  doi          = {https://doi.org/https://doi.org/10.1080/09603107.2014.941530},
}

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Exchange-traded funds, liquidity and volatility

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Evidence weight

0.63

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.72 × 0.4 = 0.29
M · momentum0.80 × 0.15 = 0.12
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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