The Impact of ETFs on Asset Markets: Experimental Evidence

40 Pages Posted: 28 Dec 2019 Last revised: 1 Feb 2020

See all articles by John Duffy

John Duffy

University of California, Irvine

Jean Paul Rabanal

Monash University

Olga Rud


Date Written: January 24, 2020


We examine how exchange traded funds (ETFs) affect asset pricing, volatility and trade volume in a laboratory asset market. We consider markets with or without ETF assets and whether there is zero or negative correlation in asset returns. In the latter case, the diversification benefits of ETFs are most salient. We find that when the returns are negatively correlated, ETFs reduce mispricing and price volatility without decreasing trading volume. When returns are uncorrelated, the ETF has no impact. Thus, our findings suggest that ETFs do not harm, and may in fact improve, price discovery and liquidity in asset markets.

Keywords: ETF, Asset Pricing, Volatility, Volume, Experimental Finance

JEL Classification: G11, G12, G14, C92

Suggested Citation

Duffy, John and Rabanal, Jean Paul and Rud, Olga, The Impact of ETFs on Asset Markets: Experimental Evidence (January 24, 2020). Available at SSRN: or

John Duffy (Contact Author)

University of California, Irvine ( email )

Department of Economics
3151 Social Science Plaza
Irvine, CA 92697
United States
949-824-8341 (Phone)

Jean Paul Rabanal

Monash University ( email )


Olga Rud

RMIT ( email )

124 La Trobe Street
Melbourne, 3000

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