Empirical Analysis of ETF Intraday Trading
Posted: 15 Jul 2016
Date Written: 2012
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: Suggested Citation