Abstract

http://ssrn.com/abstract=2158361
 
 

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Exchange Traded Funds and Asset Return Correlations


Zhi Da


University of Notre Dame - Mendoza College of Business

Sophie Shive


University of Notre Dame - Department of Finance

March 1, 2016


Abstract:     
We provide novel evidence supporting the notion that arbitrageurs can contribute to return comovement via ETF arbitrage. Using a large sample of U.S. equity ETF holdings, we document the link between measures of ETF activity and return comovement at both the fund and the stock levels, after controlling for a host of variables and fixed effects and by exploiting the “discontinuity” between stock indices. The effect is also stronger among small and illiquid stocks. An examination of ETF return autocorrelations and stock lagged beta provides evidence for price reversal, suggesting that some ETF-driven return comovement may be excessive.

Number of Pages in PDF File: 56

Keywords: exchange-traded funds, correlation

JEL Classification: G14, G23


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Date posted: October 8, 2012 ; Last revised: March 15, 2016

Suggested Citation

Da, Zhi and Shive, Sophie, Exchange Traded Funds and Asset Return Correlations (March 1, 2016). Available at SSRN: http://ssrn.com/abstract=2158361 or http://dx.doi.org/10.2139/ssrn.2158361

Contact Information

Zhi Da
University of Notre Dame - Mendoza College of Business ( email )
Notre Dame, IN 46556-5646
United States
Sophie Shive (Contact Author)
University of Notre Dame - Department of Finance ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
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