Abstract

http://ssrn.com/abstract=2026802
 


 



Liquidity and Market Quality Around Predictable Trades: Evidence from Crude Oil ETF Rolls


Hendrik Bessembinder


University of Utah - Department of Finance

Allen Carrion


Lehigh University

Laura A. Tuttle


U.S. Securities and Exchange Commission - Division of Economic and Risk Analysis

Kumar Venkataraman


Southern Methodist University (SMU) - Edwin L. Cox School of Business

November 6, 2014


Abstract:     
We extend the theory of strategic trading around a predictable liquidation to show that such benefits rather than harms the liquidator if the market is “resilient” in the sense that trades’ temporary price impacts are quickly reversed. We provide related empirical evidence by studying prices, liquidity, and individual account trading activity around the large and predictable “roll” trades undertaken by the largest ETF tracking crude oil futures prices. The evidence indicates narrower bid-ask spreads, greater order book depth, improved market resiliency, and that more trading accounts provide liquidity on roll dates. However, the large volume of trading associated with the roll transactions leads to substantial trade execution costs that average three percent per year. On balance, the theory and evidence indicates that other traders effectively provide liquidity to rather than exploit predictable trades in resilient markets.

Number of Pages in PDF File: 57

Keywords: predatory trading, sunshine trading, trading costs, resiliency, ETFs, crude oil, energy, commodities, futures

JEL Classification: G1, G2

working papers series





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Date posted: March 23, 2012 ; Last revised: November 7, 2014

Suggested Citation

Bessembinder, Hendrik and Carrion, Allen and Tuttle, Laura A. and Venkataraman, Kumar, Liquidity and Market Quality Around Predictable Trades: Evidence from Crude Oil ETF Rolls (November 6, 2014). Available at SSRN: http://ssrn.com/abstract=2026802 or http://dx.doi.org/10.2139/ssrn.2026802

Contact Information

Hendrik (Hank) Bessembinder (Contact Author)
University of Utah - Department of Finance ( email )
David Eccles School of Business
Salt Lake City, UT 84112
United States
Allen Carrion
Lehigh University ( email )
Bethlehem, PA 18015
United States
Laura A. Tuttle
U.S. Securities and Exchange Commission - Division of Economic and Risk Analysis ( email )
United States Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
United States
202-551-6544 (Phone)
Kumar Venkataraman
Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )
P.O. Box 750333
Dallas, TX 75275-0333
United States
214-768-7005 (Phone)
214-768-4099 (Fax)
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