Equivalent volume and comovement

Arsenio Staer and Pedro Sottile

The Quarterly Review of Economics and Finance, 2018, vol. 68, issue C, 143-157

Abstract: We introduce a new indicator of relative liquidity, equivalent volume (EV), based on the amount of a stock traded indirectly through its inclusion in ETFs. We hypothesize that the EV of an ETF component stock is related to its comovement with other component stocks through the relative liquidity channel under trading caused by arbitrage. Using daily ETF holdings and several comovement estimators, we find that a one-unit increase in daily equivalent volume is associated with increase in comovement ranging from 1.1% to 27.6%. Our findings contribute to the literature on trading volume, liquidity and comovement by relating arbitrage-induced trading pressure to the underlying stock comovement.

Keywords: ETF; Liquidity; Arbitrage; Comovement; Trading volume; Asset pricing (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:68:y:2018:i:c:p:143-157

DOI: 10.1016/j.qref.2017.11.001

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