Do liquidity proxies measure liquidity accurately in ETFs?

Ben Marshall, Nhut H. Nguyen and Nuttawat Visaltanachoti ()

Journal of International Financial Markets, Institutions and Money, 2018, vol. 55, issue C, 94-111

Abstract: We document the performance of liquidity proxies in ETFs. Most proxies are developed for use in equities. However, ETFs have lower asymmetric information, more algorithmic trading, and an active primary market where units are frequently created and redeemed. Using a comprehensive database of over 600 ETFs, we find that despite the differences between ETF and stock liquidity, proxies such as Daily Spread, High-Low, Close-High-Low, and Amihud all do a good job of capturing changes in effective and quoted spread transaction costs. However, no proxies accurately reflect movements in price impact or the level of actual transaction costs.

Keywords: Liquidity measurement; Liquidity proxy; Transaction costs; Exchange traded funds; ETF (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:55:y:2018:i:c:p:94-111

DOI: 10.1016/j.intfin.2018.02.011

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