An Intertemporal Study of ETF Liquidity and Underlying Factor Transition, 2009-2014

“An Inter-temporal Study of ETF Liquidity and Underlying Factor Transition (2009-2014)”, Agrrawal P., Clark J., Agarwal R. and Kale J., Journal of Trading, Vol. 9, No. 3, pp. 69-78, 2014.

https://doi.org/10.3905/jot.2014.9.3.069

Posted: 21 May 2019

See all articles by Pankaj Agrrawal

Pankaj Agrrawal

University of Maine

John M. Clark

University of Southern Mississippi - College of Business Administration - Economics, Finance, & International Business

Rajat Agarwal

University of St. Gallen

Jivendra K Kale

Saint Mary's College of California

Date Written: 2014

Abstract

This article seeks to determine the migration of exchange-traded fund (ETF) liquidity and its factor constituents in the U.S. market over time, with the ultimate goal of making the ETF market more efficient and transparent. Using a set of factors commonly thought to impact liquidity, the authors develop a four-factor liquidity scoring algorithm (A-C liquidity score), extending the 2009 study by Agrrawal and Clark. The most liquid ETFs typically have lower bid-ask spreads, higher market capitalizations, lower expense ratios, and higher average trading volumes. The transition of ETF liquidity over the 2009-2014 period indicates that there is liquidity persistence and factor strengthening across all variables. Bid-ask spreads and expense ratios have compressed, which is a good trend for investors.

Keywords: ETFs, bid-ask, trading volume, liquidity

JEL Classification: G

Suggested Citation

Agrrawal, Pankaj and Clark, John Michael and Agarwal, Rajat and Kale, Jivendra K, An Intertemporal Study of ETF Liquidity and Underlying Factor Transition, 2009-2014 (2014). “An Inter-temporal Study of ETF Liquidity and Underlying Factor Transition (2009-2014)”, Agrrawal P., Clark J., Agarwal R. and Kale J., Journal of Trading, Vol. 9, No. 3, pp. 69-78, 2014., https://doi.org/10.3905/jot.2014.9.3.069, Available at SSRN: https://ssrn.com/abstract=2638948 or http://dx.doi.org/10.2139/ssrn.2638948

Pankaj Agrrawal (Contact Author)

University of Maine ( email )

Orono, ME 04469
United States

John Michael Clark

University of Southern Mississippi - College of Business Administration - Economics, Finance, & International Business ( email )

USM Box 5072
Hattiesburg, MS 39406
United States
601-266-5766 (Phone)
601-266-4920 (Fax)

Rajat Agarwal

University of St. Gallen ( email )

Dufourstrasse 50
St.Gallen, CH-9000
Switzerland

Jivendra K Kale

Saint Mary's College of California ( email )

P.O. Box 4240
Moraga, CA 94575-4240
United States

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