Exchange Traded Funds and the Liquidity of the Component Stocks

Abstract

This study examined the liquidity of Exchange Traded Fund and its component stocks on the Nigerian Stock Exchange (NSE). The data for this study was the daily opening price, day price, and volume traded for the ETF and the first 10 most capitalized stocks of NSE 30. The data were analyzed using descriptive statistics and Amihud’s measure of illiquidity. The results show that the component stocks are more liquid than the ETFs and it was recommended that the regulators should educate the investors and their agents on the likely benefits of investing in ETFs rather than the individual component stocks.

Keywords: Exchange Traded Fund, component stocks, liquidity

JEL Classification: G23