ETF effects: the role of primary versus secondary market activities

Carole Comerton-Forde and Thomas Marta

No 18234, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: High frequency traders (HFTs) dominate trading activity in Exchange Traded Funds (ETF). Their trading is independent of daily ETF mispricing and primary market activities. In contrast, primary market activities correlate positively with mispricing, revealing divergent trading strategies between HFTs and primary market arbitrageurs. While primary market activities can heighten volatility and illiquidity in ETF constituent securities, HFTs' activity is associated with lower bid ask spreads. The infrequency and minimal scale of primary market activities suggest that the benefits of secondary market activity in ETFs outweigh the negative impacts of primary market activity.

Keywords: Liquidity; Arbitrage; Volatility; High frequency trading; Exchange-traded funds (search for similar items in EconPapers)
JEL-codes: G14 G15 G23 (search for similar items in EconPapers)
Date: 2023-06
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP18234 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

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:cpr:ceprdp:18234

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP18234

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().