Direct and Indirect Effects of Index ETFs on Spot-Futures Pricing and Liquidity: Evidence from the CAC 40 Index

Deville, Laurent; Gresse, Carole; Séverac, Béatrice de

doi:10.2139/ssrn.1903898

Cited by 2 publications

(1 citation statement)

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“…They also find that more buyers (sellers) initiated arbitrage trades in response to underpricing (overpricing). Deville, Gresse, and Séverac (2014) study the impact of the Lyxor CAC 40 ETF on the pricing and arbitrage efficiency between the index futures and the underlying index. The authors find that the noarbitrage pricing relation for index futures significantly improved after the introduction of the ETF.…”

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Sampling Frequency on Intraday Correlation and Lead–Lag Relationships Between Index Futures and Individual Stocks

Fung

Lau

Tse

2015

Journal of Futures Markets

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Transaction costs, liquidity effects, capital limits, and regulatory restrictions reduce arbitrage efficiency and weaken the link between futures prices and their underlying stocks. This study examines how the sampling frequency for return calculation affects the intraday correlation and the lead–lag relationship between the Hong Kong Hang Seng Index futures, the underlying cash index, an exchange‐traded fund (ETF) that mimics the index, and each component stock. The paper uses firm bid and offer quotes to eliminate the negative bias in measuring the correlation between the futures and the less liquid stocks. The sampling frequency significantly affects the futures‐stock dynamic relationship, particularly for small‐cap stocks. The overall results indicate that market participants trade ETF and the largest index's constituent stocks to capitalize on index arbitrage opportunities. The lag of the cash index is greatest against futures price movement, a reflection of the adverse impact of stale prices on the informational role of stock indexes. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 35:939–952, 2015

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Section: Literature Reviewmentioning

confidence: 99%

The Impact of Sampling Frequency on Intraday Correlation and Lead–Lag Relationships Between Index Futures and Individual Stocks

Fung

Lau

Tse

2015

Journal of Futures Markets

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Short‐sale constraints and securities lending by exchange‐traded funds

2013

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PurposeThe purpose of this paper is to investigate the extent to which introduction of ETFs reduces short‐sale constraints in their constituent stocks.Design/methodology/approachFirst, the introduction of ETFs increases short interest for stocks that they hold. Second, the increase in short interest is highest for the stocks that were most short‐sale constrained. Third, subsequent additions of a stock to an ETF will have a lesser impact on short interest than the first time additions. Finally, using matched control sample and regression analysis approaches, the authors make sure that their results are robust to determinants of short‐selling activity which extant research has found to be relevant.FindingsWhen a stock is included in an ETF for the first time, the paper finds that the average monthly short‐selling activity of the stock in the six months following ETF‐inclusion is, on average, 33 percent higher than that in six months prior to the inclusion. This effect is the strongest for stocks that are most short‐sale constrained. The analysis of subsequent additions of stocks to ETFs reveals that the effect of increased short‐selling activity is significantly attenuated when compared to the first‐time additions. All of the findings are robust to the matched sample comparisons and multiple regression analysis that account for determinants of short‐selling activity.Originality/valueThis paper shows that: the introduction of ETFs helps relax short‐sale constraints in the market; that the extent to which a stock's outstanding shares are held by one or more ETFs serves as a proxy for the degree to which stocks are short‐sale constrained; and implies that the introduction of ETFs makes the prices of the funds' underlying securities more efficient.

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Direct and Indirect Effects of Index ETFs on Spot-Futures Pricing and Liquidity: Evidence from the CAC 40 Index

Cited by 2 publications

References 32 publications

The Impact of Sampling Frequency on Intraday Correlation and Lead–Lag Relationships Between Index Futures and Individual Stocks

The Impact of Sampling Frequency on Intraday Correlation and Lead–Lag Relationships Between Index Futures and Individual Stocks

Short‐sale constraints and securities lending by exchange‐traded funds

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