Predicting ETF Liquidity

43 Pages Posted: 4 Aug 2020 Last revised: 16 Sep 2021

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: August 01, 2021

Abstract

A substantial amount is incurred in ETF transaction costs each year. This paper examines a vector autoregressive (VAR) model's performance and other trading schedules to time trades in a large sample of 1,350 ETFs over the 2011 to 2017 period. We find varied spread savings for large and retail ETF traders by timing transactions. A large ETF trader can save 7.40% of ETF spread costs, whereas trading at the market closing time would be optimal for a retail ETF trader to reduce spread costs. The spread savings for large ETF traders are diverse across ETF sectors and depend on the spread volatility.

Keywords: ETFs, Liquidity, Bid-Ask Spread, Forecasting

JEL Classification: G11, G23

Suggested Citation

Pham, Son Duy and Marshall, Ben R. and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, Predicting ETF Liquidity (August 01, 2021). Available at SSRN: https://ssrn.com/abstract=3645887 or http://dx.doi.org/10.2139/ssrn.3645887

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
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