The volatility-liquidity dynamics of single-stock ETFs

Le Zhao, Vinh Huy Nguyen and Chen Li

Finance Research Letters, 2024, vol. 69, issue PB

Abstract: Single-stock exchange-traded fund (SSETF) is the latest innovation in the ETF arrays of products. We examine the dynamics of the volatility-liquidity relationship between these SSETFs and their underlying stocks. We find that SSETFs have higher volatility and lower liquidity than the underlying stocks. During periods of higher stock volatility, the liquidity of SSETFs is significantly reduced. We also find evidence that SSETF traders can mitigate the liquidity problem by using intermarket sweep orders and routing orders to lit exchanges.

Keywords: Exchange-traded funds; Volatility; Liquidity; Intermarket sweep orders; Lit exchanges (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324011929

DOI: 10.1016/j.frl.2024.106163

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