ETF ownership and informational efficiency of underlying stocks: Evidence from China

Weili Wu and Feifei Zhu

Pacific-Basin Finance Journal, 2023, vol. 79, issue C

Abstract: This study investigates how exchange-traded fund (ETF) activity affects the informational efficiency of its underlying stocks in the Chinese market, which has several different features from developed markets. We show that increased ETF ownership improves stock liquidity and attracts informed investors, resulting in higher pricing efficiency. By exploiting the heterogeneity of four different types of ETFs in the Chinese market, we show that the informational role of ETFs depends on whether they can be used for intraday trading, which significantly improves underlying securities' liquidity. Our study adds to the ongoing debate on the economic consequences of financial innovations and sheds light on the informational role of ETFs for emerging markets.

Keywords: Exchange-traded funds (ETF); Informational efficiency; Stock liquidity; Informed trading (search for similar items in EconPapers)
JEL-codes: G12 G14 M41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23000719

DOI: 10.1016/j.pacfin.2023.102005

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