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Do ETFs lead the price moves? Evidence from the major US markets

Mike Buckle, Jing Chen, Qian Guo and Chen Tong

International Review of Financial Analysis, 2018, vol. 58, issue C, 91-103

Abstract: In this paper, we study relative price discovery for three major US indices, their futures and exchange traded funds (ETFs) using intra-day price movements from 2003 until 2013. The methodologies employed in our analysis include information share (IS), permanent and transitory decomposition (PT), and weighted price contribution (WPC). The results from PT indicate that for each index ETFs have taken over the role of price discovery from futures contracts; whilst the results from WPC suggest that the spot markets lead price movements, which in turn implies the ETFs may have adjusted prices actively to pre-market information and activities.

Keywords: Price discovery; Information share; ETFs; Permanent and transitory decomposition; Weighted price contribution (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:finana:v:58:y:2018:i:c:p:91-103