Equivalent Volume and Comovement

52 Pages Posted: 2 Nov 2014 Last revised: 25 Oct 2017

See all articles by Arsenio Staer

Arsenio Staer

California State University, Fullerton, Mihaylo College of Business & Economics, Department of Finance

Pedro Sottile

University of Wisconsin, Eau Claire - Accounting & Finance

Date Written: October 20, 2017

Abstract

We introduce a new indicator of relative liquidity, equivalent volume (EV), based on the amount of a stock traded indirectly through its inclusion in ETFs. We hypothesize that the EV of an ETF component stock is related to its comovement with other component stocks through the relative liquidity channel under trading caused by arbitrage. Using daily ETF holdings and several comovement estimators, we find that a one unit increase in daily equivalent volume is associated with increase in comovement ranging from 1.1% to 27.6%. Our findings contribute to the literature on trading volume, liquidity and comovement by relating arbitrage-induced trading pressure to the underlying stock comovement.

Keywords: ETF, arbitrage, comovement, trading volume, asset basket

JEL Classification: G12, G14, G23

Suggested Citation

Staer, Arsenio and Sottile, Pedro, Equivalent Volume and Comovement (October 20, 2017). Available at SSRN: https://ssrn.com/abstract=2517741 or http://dx.doi.org/10.2139/ssrn.2517741

Arsenio Staer (Contact Author)

California State University, Fullerton, Mihaylo College of Business & Economics, Department of Finance ( email )

PO Box 34080
Fullerton, CA 92834-9480
United States

Pedro Sottile

University of Wisconsin, Eau Claire - Accounting & Finance ( email )

Accounting and Finance
Eau Claire, WI 54702
United States

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