Do ETFs Increase Volatility?

Itzhak Ben-David, Francesco Franzoni and Rabih Moussawi

No 20071, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study whether exchange traded funds (ETFs)--an asset of increasing importance--impact the volatility of their underlying stocks. Using identification strategies based on the mechanical variation in ETF ownership, we present evidence that stocks owned by ETFs exhibit significantly higher intraday and daily volatility. We estimate that an increase of one standard deviation in ETF ownership is associated with an increase of 16% in daily stock volatility. The driving channel appears to be arbitrage activity between ETFs and the underlying stocks. Consistent with this view, the effects are stronger for stocks with lower bid-ask spread and lending fees. Finally, the evidence that ETF ownership increases stock turnover suggests that ETF arbitrage adds a new layer of trading to the underlying securities.

JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2014-04
New Economics Papers: this item is included in nep-cfn and nep-mst
Note: AP CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Published as ITZHAK BEN-DAVID & FRANCESCO FRANZONI & RABIH MOUSSAWI, 2018. "Do ETFs Increase Volatility?," The Journal of Finance, vol 73(6), pages 2471-2535.

Downloads: (external link)
http://www.nber.org/papers/w20071.pdf (application/pdf)

Related works:
Journal Article: Do ETFs Increase Volatility? (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:20071

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w20071

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().