Price Discovery in Holdr Security Baskets and the Underlying Stocks
29 Pages Posted: 17 Aug 2006
Date Written: June 2006
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: Suggested Citation