ETF ownership and stock liquidity: evidence from China

Nanjia Wang and Ziyu Ma

Asia-Pacific Journal of Accounting & Economics, 2025, vol. 32, issue 4, 630-647

Abstract: Due to their low participation cost, exchange-traded funds (ETFs) are booming in China. We find that stocks with higher ETF ownership display higher liquidity while controlling for other institutional ownership. In the post-crash periods when ETF market evolves rapidly, the impact becomes greater. For large-capitalization stocks, ETF ownership has a stronger impact on stock liquidity. The liquidity shocks in the ETFs market can propagate to the underlying stocks through the instantaneous creation/redemption arbitrage mechanism. Moreover, ETF market makers create/redeem to manage their inventory risk, therefore introducing liquidity to stocks.

Date: 2025
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DOI: 10.1080/16081625.2024.2346581

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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