Active ETF Liquidity

60 Pages Posted: 8 May 2019 Last revised: 27 Mar 2020

See all articles by Son Duy Pham

Son Duy Pham

Massey University -School of Economics and Finance

Ben R. Marshall

Massey University - School of Economics and Finance

Nhut H. Nguyen

Auckland University of Technology

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: March 27, 2020

Abstract

Active ETFs are less liquid than their underlying portfolios. This finding, which contrasts with that for passive ETFs, is attributed to uncertainty of future holdings of active ETFs. In addition, while diversification generally reduces firm-specific information asymmetry and improves portfolio liquidity, the liquidity of active ETFs is adversely affected by diversification, consistent with the substitution effect between diversification and liquidity documented in the literature. Furthermore, we show the gap between active ETF and underlying liquidity varies cross-sectionally and over time and can be explained by differences in size and volume between ETFs and their underlying portfolio, ETF age, and ETF pricing errors.

Keywords: ETFs; Portfolio Liquidity; Diversification

JEL Classification: G11; G23

Suggested Citation

Pham, Son Duy and Marshall, Ben R. and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, Active ETF Liquidity (March 27, 2020). Available at SSRN: https://ssrn.com/abstract=3369235 or http://dx.doi.org/10.2139/ssrn.3369235

Son Duy Pham (Contact Author)

Massey University -School of Economics and Finance ( email )

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Ben R. Marshall

Massey University - School of Economics and Finance ( email )

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Nhut H. Nguyen

Auckland University of Technology ( email )

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Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
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Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

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