Predatory or Sunshine Trading? Evidence from Crude Oil ETF Rolls
University of Utah - Department of Finance
Laura A. Tuttle
U.S. Securities and Exchange Commission - Division of Economic and Risk Analysis
Southern Methodist University (SMU) - Edwin L. Cox School of Business
March 5, 2014
We study prices, liquidity, and individual account trading activity around large and predictable ETF “roll” trades in crude oil futures markets. We find narrower bid-ask spreads, greater order book depth, and more trading accounts providing liquidity on roll dates. We estimate that the largest ETF tracking crude oil prices effectively pays round-trip trading costs that average 25 basis points. Overall, the evidence indicates that traders effectively provide liquidity rather than follow predatory strategies in this “resilient” market, as implied by sunshine trading theories and by our modified theory of strategic trading around a predictable liquidation.
Number of Pages in PDF File: 57
Keywords: predatory trading, sunshine trading, trading costs, resiliency, ETFs, crude oil, energy, commodities, futures
JEL Classification: G1, G2working papers series
Date posted: March 23, 2012 ; Last revised: March 6, 2014
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