The impact of ETFs in secondary asset markets: Experimental evidence

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

Journal of Economic Behavior & Organization, 2021, vol. 188, issue C, 674-696

Abstract: We examine how exchange traded funds (ETFs) affect asset pricing, and turnover in a laboratory asset market. We focus on behavior in secondary markets with or without ETF assets and whether there is zero or negative correlation in asset dividends. In the latter case, the diversification benefits of ETFs are most salient. We find that when the dividends are negatively correlated, ETFs reduce asset mispricing without decreasing market activity (turnover). When dividends are uncorrelated, the ETF has no impact on these same measures. Thus, our findings suggest that ETFs do not harm, and may in fact improve, price discovery and liquidity in asset markets.

JEL-codes: C92 G11 G12 G14 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268121002353
Full text for ScienceDirect subscribers only

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:eee:jeborg:v:188:y:2021:i:c:p:674-696

DOI: 10.1016/j.jebo.2021.06.003

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().