Price Discovery in Holdr Security Baskets and the Underlying Stocks

29 Pages Posted: 17 Aug 2006

See all articles by Thomas Henker

Thomas Henker

Bond University

Martin Martens

Erasmus University Rotterdam (EUR); Robeco Asset Management

Date Written: June 2006

Abstract

HOLDRs, a type of basket security, enable investors to purchase an entire industry sector with one transaction. We examine the link between HOLDR basket securities and the underlying stocks. Contrary to the findings of studies using other basket securities, with HOLDRs we find that the price of the portfolio of underlying securities is more informative than and leads the HOLDR (basket) price. Our results are the first empirical confirmation of Subrahmanyam's (1991) theoretical model of the interaction of the redundant security with its underlying assets.

Keywords: Price discovery, basket securities, HOLDR, information share

JEL Classification: G10

Suggested Citation

Henker, Thomas and Martens, Martin P.E., Price Discovery in Holdr Security Baskets and the Underlying Stocks (June 2006). Available at SSRN: https://ssrn.com/abstract=924520 or http://dx.doi.org/10.2139/ssrn.924520

Thomas Henker (Contact Author)

Bond University ( email )

Gold Coast, QLD 4229
Australia
+61 7 5595-1561 (Phone)

Martin P.E. Martens

Erasmus University Rotterdam (EUR) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1253 (Phone)
+31 10 408 9162 (Fax)

Robeco Asset Management ( email )

Rotterdam, 3011 AG
Netherlands

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