The Impact of ETFs in Secondary Asset Markets: Experimental Evidence

48 Pages Posted: 28 Dec 2019 Last revised: 19 Jan 2021

See all articles by John Duffy

John Duffy

University of California, Irvine

Jean Paul Rabanal

Monash University

Olga Rud


Date Written: July 14, 2020


We examine how exchange traded funds (ETFs) affect asset pricing, and trade volume in a laboratory asset market. We focus on behavior in secondary markets with or without ETF assets and whether there is zero or negative correlation in asset dividends. In the latter case, the diversification benefits of ETFs are most salient. We find that when the dividends are negatively correlated, ETFs reduce mispricing without decreasing trading volume. When dividends are uncorrelated, the ETF has no impact on these same measures. 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, Volume, Experimental Finance

JEL Classification: G11, G12, G14, C92

Suggested Citation

Duffy, John and Rabanal, Jean Paul and Rud, Olga, The Impact of ETFs in Secondary Asset Markets: Experimental Evidence (July 14, 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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