Direct and Indirect Effects of Index ETFs on Spot-Futures Pricing and Liquidity: Evidence from the CAC 40 Index

This paper investigates how the introduction of an index security directly or indirectly impacts the underlying-index spot-futures pricing.

Author(s):

Laurent Deville

CNRS, GREDEGEDHEC Business School

Carole Gresse

Université Paris-Dauphine

Beatrice de Severac

Université Paris Ouest Nanterre La Défense

Using intraday data for financial instruments related to the CAC 40 index, we do not find that the spot-futures price efficiency improvement observed after ETF introduction is explained either by the direct effect of ETF shares being used in arbitrage trades or by the indirect effect of ETF trading improving the liquidity of index stocks in the short run. Some of our findings suggest that the efficiency improvement could rather result from a structural change in the way index traders distribute across index markets, with the ETF market absorbing the liquidity demand from some hedgers or passive index traders.
Pdf
Direct and Indirect Effects of Index ETFs on Spot-Futures Pricing and Liquidity:...
(-1.00 B)
Type: Working paper
Date: le 04/07/2011
Extra information : For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]
Research Cluster : Finance

See Also

Bond Portfolio Optimization in the Presence of Duration Constraints - EDHEC-Risk Institute research article in the Journal of Fixed Income
News
- 19-07-2018
We are pleased to enclose an EDHEC-Risk Institute research article published in the...
Lionel Martellini discussed ageing population: goal-based investing and its application to the retirement problem
News
- 10-07-2018
Lionel Martellini, Professor of Finance at EDHEC Business School and Director of EDHEC-...
EDHECInfra Days: Infrastructure Investors need proper benchmarks
News
- 05-07-2018
Earlier this month we held the first EDHECinfra Days event in London, bringing together...
EDHEC Family Business Centre Dissemin’Actions
News
- 05-07-2018
Since the beginning of 2018, researchers and teachers from the Family Business Centre...