Liquidity and Risk Sharing Benefits from Opening an ETF Market with Liquidity Providers: Evidence from the CAC 40 Index - DRM (Dauphine Recherches en Management) Accéder directement au contenu
Article Dans Une Revue International Review of Financial Analysis Année : 2014

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

Résumé

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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Dates et versions

halshs-00997859 , version 1 (29-05-2014)

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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, pp.31-43. ⟨10.1016/j.irfa.2014.04.003⟩. ⟨halshs-00997859⟩
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