Liquidity and Risk Sharing Benefits from Opening an ETF Market with Liquidity Providers: Evidence from the CAC 40 Index

Abstract : This article examines how the introduction of an ETF replicating a stock index impacts on the liquidity of the underlying stocks when the ETF market involves liquidity providers (LPs). We find that index stock spreads decline, relative to those of non-index stocks, after the introduction of the ETF but this liquidity improvement is not driven by changes in adverse selection costs or recognition effects. By contrast, we show that it is mainly explained by a decrease in order processing and order imbalance costs. This most probably results from additional risk sharing capacities provided by increased cross-market trading and LPs’ liquidity provision in low-liquidity times.
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Article dans une revue
International Review of Financial Analysis, 2014, 34, 〈10.1016/j.irfa.2014.04.003〉
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https://hal.archives-ouvertes.fr/hal-01632503
Contributeur : Christine Okret-Manville <>
Soumis le : vendredi 10 novembre 2017 - 12:08:18
Dernière modification le : samedi 11 novembre 2017 - 01:14:47

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Rudy De Winne, Carole Gresse, Isabelle Platten. Liquidity and Risk Sharing Benefits from Opening an ETF Market with Liquidity Providers: Evidence from the CAC 40 Index. International Review of Financial Analysis, 2014, 34, 〈10.1016/j.irfa.2014.04.003〉. 〈hal-01632503〉

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