Analysis of DJIA, S&P 500, S&P 400, NASDAQ 100 and Russell 2000 ETFs and their influence on price discovery

Stoyu I. Ivanov, Frank J. Jones and Janis K. Zaima

Global Finance Journal, 2013, vol. 24, issue 3, 171-187

Abstract: This study examines the temporal behavior of price discovery in the spot, ETF and futures markets of the DJIA, S&P 500, S&P 400, NASDAQ 100 and Russell 2000. We document an increasing trend in the price discovery metrics of exchange traded funds for all indexes but the DJIA. Contrary to past studies, our findings show that the spot market rather than the futures market leads the price discovery. The arbitrage process that links exchange traded funds to spot prices, and not the futures prices might explain the results. This daily arbitrage that ensures exchange traded funds prices equal net asset values appear to promote spot market price discovery especially with the popularity of exchange traded funds in more recent years. We additionally document that the temporal behavior of the exchange traded funds price discovery metric affects differently price discovery in the spot and futures markets across indexes.

Keywords: ETF market; Futures market; Spot market; Price discovery (search for similar items in EconPapers)
JEL-codes: G13 G14 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:24:y:2013:i:3:p:171-187

DOI: 10.1016/j.gfj.2013.10.005

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