Inattentive Price Discovery in ETFs

Mariia Kosar and Sergei Mikhalishchev

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: This paper studies the information choice of exchange-traded funds (ETF) investors, and its impact on the price efficiency of underlying stocks. First, we show that the learning of stock-specific information can occur at the ETF level. Our results suggest that ETF investors respond endogenously to changes in the fundamental value of underlying stocks, in line with the rational inattention theory. Second, we provide evidence that ETFs facilitate propagation of idiosyncratic shocks across its constituents.

Keywords: Exchange-Traded Fund; ETF; Price Efficiency; Rational Inattention; Information Acquisition; Comovement (search for similar items in EconPapers)
JEL-codes: D82 G12 G14 (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-fmk, nep-mst and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp735

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