Predicting ETF Liquidity

45 Pages Posted: 4 Aug 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: July 8, 2020

Abstract

A substantial amount is incurred in ETF transaction costs each year. This paper examines the performance of a vector autoregressive (VAR) model and other naïve models to time trades in 1,350 ETFs over the 2011 to 2017 period. We find varied spread savings for large and retail ETF traders by timing trades. 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 (July 8, 2020). 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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New Zealand
+64 9 921 9999 (Phone)

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

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