Empirical Analysis of ETF Intraday Trading

Posted: 15 Jul 2016

See all articles by Mingsheng Li

Mingsheng Li

Bowling Green State University - College of Business Administration

Daniel P. Klein

Bowling Green State University

Xin Zhao

Pennsylvania State University (Erie) - The Behrend College

Date Written: 2012

Abstract

We investigate the trading of benchmark ETFs, leveraged ETFs, and leveraged inverse ETFs that are matched based on their tracking index or sector. We find that ETF trading is very active and average daily trading volume for the most active ETF is more than $25 billion during the period of March 2007 to December 2009. The daily turnover ratio of leveraged and leveraged inverse ETFs are about 4 to 6 times the turnover ratio of the benchmark ETFs on average, and spreads and price volatility of the leveraged and leveraged inverse ETFs are also significantly larger than those of the benchmark ETFs. Trading volume and turnover ratio of all ETFs increased significantly during and after the financial crisis and the active trading is further enhanced when the price movement of benchmark ETFs is large. We also find that small trades dominate trading of all ETFs, and yet they do not play an important role in daily price movements. In addition, we find a U-shaped and an L-shaped intraday pattern for trading volume and return volatility, respectively. These empirical results are important for individual investors, especially those who do not have sophisticated trading experience and lack resources for collecting and processing private information.

Keywords: Exchange Traded Funds, Leveraged ETFs, Leveraged inverse ETFs, Bear market, Financial crisis, Intraday trade pattern, Basket securities

JEL Classification: G14

Suggested Citation

Li, Mingsheng and Klein, Daniel P. and Zhao, Xin Jessica, Empirical Analysis of ETF Intraday Trading (2012). Financial Services Review, Vol. 21, (2012). Available at SSRN: https://ssrn.com/abstract=2809351

Mingsheng Li (Contact Author)

Bowling Green State University - College of Business Administration ( email )

Bowling Green, OH 43403
United States

Daniel P. Klein

Bowling Green State University ( email )

Department of Psychology
Bowling Green, OH 43403
United States
Not availabe (Phone)
Not available (Fax)

Xin Jessica Zhao

Pennsylvania State University (Erie) - The Behrend College ( email )

286 Burke
Erie, PA 16563-1400
United States

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