Direct and Indirect Effects of Index ETFs on Spot-Futures Mispricing and Illiquidity

Laurent Deville, Carole Gressse and Béatrice de Séverac
Additional contact information
Carole Gressse: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Béatrice de Séverac: CEROS - Centre d'Etudes et de Recherches sur les Organisations et la Stratégie - UPN - Université Paris Nanterre

Post-Print from HAL

Abstract: Our article investigates how the introduction of an index security directly and indirectly impacts the links between the underlying-index spot-futures mispricing. Using intraday data for financial instruments related to the CAC 40 index, we show that the efficiency improvement consequent to the inception of the Lyxor CAC 40 Exchange-Traded Fund (ETF) is not a direct effect of arbitrage trading using the ETF as the cash asset, as argued in previous literature. Indeed, ETF trading does not Grangercause futures price reversion. However, there is a strong causal relation between indexfutures mispricing and illiquidity in the underlying stocks after the introduction of the ETF, suggesting that the ETF introduction indirectly improves spot-future price linkage by enhancing the liquidity of the underlying stocks.

Keywords: Exchange-Traded Fund (ETF); Efficiency; Arbitrage; Liquidity; Futures (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published in European Financial Management, 2012, pp.22

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:hal:journl:halshs-00727687

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().