Trading Your Neighbor's Etfs: Competition or Fragmentation?

50 Pages Posted: 29 Nov 2001

See all articles by Beatrice Boehmer

Beatrice Boehmer

affiliation not provided to SSRN

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 2003

Abstract

On July 31, 2001, for the first time in its history, the New York Stock Exchange began trading three unlisted securities. The DIA, SPY, and QQQ are the most actively traded Exchange Traded Funds (ETFs) and are listed on the American Stock Exchange. On April 15, 2002 another 27 ETFs followed. These two events provide a unique experiment for studying the impact of a new entrant on market quality. In contrast to recently revived concerns about the adverse impact of market fragmentation, we document that the NYSE entry leads to a dramatic improvement in liquidity that we attribute to the elimination of market-maker rents.

Keywords: Microstructure, market fragmentation, Exchange traded fund, ETF, unlisted trading privilege, UTP

JEL Classification: G24, G14

Suggested Citation

Boehmer, Beatrice and Boehmer, Ekkehart, Trading Your Neighbor's Etfs: Competition or Fragmentation? (January 2003). AFA 2003 Washington, DC Meetings; EFA 2002 Berlin Meetings Discussion Paper. Available at SSRN: https://ssrn.com/abstract=292128 or http://dx.doi.org/10.2139/ssrn.292128

Beatrice Boehmer

affiliation not provided to SSRN

Ekkehart Boehmer (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

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