Predicting ETF liquidity

Son D Pham, Ben R Marshall, Nhut H Nguyen and Nuttawat Visaltanachoti
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Ben R Marshall: Massey University, Auckland, New Zealand
Nhut H Nguyen: Auckland University of Technology, Auckland, New Zealand
Nuttawat Visaltanachoti: School of Economics and Finance, Massey University, Auckland, New Zealand

Australian Journal of Management, 2024, vol. 49, issue 3, 478-508

Abstract: Substantial transaction costs are incurred in exchange-traded fund (ETF) trading each year. This article examines a vector autoregressive (VAR) model’s performance and other trading schedules to time trades in a large sample of 1350 ETFs over the 2011–2017 period. We reject the notion of a one-size-fits-all trading schedule that maximizes spread savings for all ETF traders. ETF traders who want to split their orders could save 7.40% of ETF spread costs, whereas trading at the market closing time would be optimal for ETF traders without motives to split trades. The spread savings for ETF traders are diverse across ETF sectors and depend on the spread volatility. JEL Classification: G11, G23

Keywords: Bid-ask spread; diversification; ETFs; forecasting; liquidity; portfolio liquidity (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:49:y:2024:i:3:p:478-508

DOI: 10.1177/03128962221143494

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