Equivalent volume and comovement

Staer, Arsenio; Sottile, Pedro

doi:10.1016/j.qref.2017.11.001

Cited by 13 publications

(4 citation statements)

References 61 publications

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“…A recent study by Ben-David, Franzoni, & Moussawi (2017) provides interesting examples where arbitrage activity propagates liquidity shocks from ETFs to the underlying stocks and increases volatility, but does not investigate stock comovement. In another contemporaneous study using proprietary daily holdings data on 12 ETFs, Staer (2012) confirms the positive relationship between ETF turnover and return comovement at higher frequency. In contrast to his tests, our study covers a much broader cross-section including 549 ETFs and 4,887 stocks.…”

Section: Introductionmentioning

confidence: 55%

Exchange traded funds and asset return correlations

Shive

2017

Euro Fin Management

207

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We provide novel evidence supporting the notion that arbitrageurs can contribute to return comovement via exchange trade funds (ETF) arbitrage. Using a large sample of US equity ETF holdings, we document the link between measures of ETF activity and return comovement at both the fund and the stock levels, after controlling for a host of variables and fixed effects and by exploiting the 'discontinuity' between stock indices. The effect is also stronger among small and illiquid stocks. An examination of ETF return autocorrelations and stock lagged beta provides evidence for price reversal, suggesting that some ETF-driven return comovement may be excessive.

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Section: Introductionmentioning

confidence: 55%

Exchange traded funds and asset return correlations

Shive

2017

Euro Fin Management

207

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“…Staer and Sotille (2018) developed a new measure of relative liquidity known as Equivalent Volume (EV) to examine how arbitrage-induced price movements in the underlying securities affects their co-movement. EV is representative of the indirect liquidity that is generated in stocks as a result of their inclusion in the ETFs.…”

Section: Review Of Literaturementioning

confidence: 99%

Do ETFs affect the return co-movement of their underlying assets? Evidence from an emerging market

Jhunjhunwala

Sethi

2022

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Purpose The objective of the present study is to examine how domestic and foreign exchange traded funds (ETFs) tracking Indian equities affect the return correlations of their underlying constituents. Further, this study investigates how these effects vary between periods of turmoil and calmness in the financial markets.Design/methodology/approach The study is based on quarterly data for stocks comprising the CNX (CRISIL NSE Indices) Nifty 50 Index from 2009Q1 to 2019Q4. The data on holdings of 45 domestic and 196 foreign ETFs in the sample stocks were obtained from Thomson Reuters’ Eikon. The paper employs a panel-regression methodology with stock and time fixed effects and robust standard errors.Findings This study documents that irrespective of the market conditions, foreign ETFs, particularly those from Asia–Pacific and European regions tend to exacerbate co-movement. Conversely, domestic ETFs lower co-movement in stable markets but during periods of turbulence a jump in return correlations is observed.Practical implications The results have important implications for ETF investors as well as market regulators because an increase in co-movement would reduce the diversification benefits of ETFs, thereby nullifying the biggest advantage that ETFs have to offer.Originality/valueThe literature on the economic impact of ETFs is highly skewed with the majority of the studies focusing on developed markets. To the best of the authors’ knowledge, this study is the first one to empirically examine the impact of ETFs on the return co-movement of an emerging market. Furthermore, the study is unique as the authors investigate how the effects of ETFs vary in turbulent and tranquil markets.

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“…Staer and Sotille's [ 33 ] study investigated the relationship between ETF arbitrage and asset co-movement by introducing a new measure of relative liquidity. Their findings demonstrated that an increase in this criterion led to a rise in co-movement.…”

Section: Review Of Literaturementioning

confidence: 99%

Can ETFs mitigate stock Co-movement? An analysis of an emerging market

Esmaeilpour Moghadam

2023

Heliyon

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Equivalent volume and comovement

Cited by 13 publications

References 61 publications

Exchange traded funds and asset return correlations

Exchange traded funds and asset return correlations

Do ETFs affect the return co-movement of their underlying assets? Evidence from an emerging market

Can ETFs mitigate stock Co-movement? An analysis of an emerging market

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