 Is competition beneficial? The case of exchange traded fundsCéline Kharma and Nicolas Eugster International Review of Financial Analysis, 2021, vol. 76, issue C Abstract: New ETF creation has surged in recent years, giving investors the option to choose from a wide range of similar ETFs within each group of competitors. We identify groups of ETFs that can be considered direct competitors and examine the impact of competition on their market quality. Results show improved market quality measures when competition increases. A change equivalent to going from a monopoly to a highly competitive market results in a 29% decrease in bid–ask spreads, a 72% decrease in illiquidity, and a 52% increase in turnover. However, we find that competition has a differential impact on ETFs according to their market depth. Market quality improves with competition for large or well-performing ETFs, while it worsens for small or under-performing ETFs. A case study on ETFs banned by the SEC in March 2010 further highlights our results in the artificially controlled competitive environment of the moratorium. Keywords: ETFs; Competition; Market quality; Market microstructure (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:76:y:2021:i:c:s1057521921001241 DOI: 10.1016/j.irfa.2021.101789 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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