The Impact of ETFs on Asset Markets: Experimental Evidence

John Duffy, Jean Paul Rabanal () and Olga Rud ()

No 154, Working Papers from Peruvian Economic Association

Abstract: We examine how exchange traded funds (ETFs) affect asset pricing, volatility and trade volume in a laboratory asset market. We consider markets with zero or negative correlations in asset returns and the presence or absence of composite ETF assets. We find that when the returns on assets are negatively correlated, the presence of an ETF asset reduces mispricing and price volatility without decreasing trading volume. In the case where returns have zero correlation, the ETF asset has no impact. Thus, our findings suggest that ETFs do not harm, and may in fact improve, price discovery and liquidity in asset markets.

Keywords: ETF; asset pricing; volatility; volume; experimental finance (search for similar items in EconPapers)
JEL-codes: C92 G11 G12 G14 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://perueconomics.org/wp-content/uploads/2019/12/WP-154.pdf Application/pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:apc:wpaper:154

Access Statistics for this paper

More papers in Working Papers from Peruvian Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Nelson Ramírez-Rondán ().