Effects of nondiscretionary trading on futures prices

O’Neill, Michael; Whaley, Robert E.

doi:10.1002/fut.22377

Cited by 2 publications

(1 citation statement)

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“…Bessembinder et al. (2016) examine demands of the USO ETF through a similar perspective, whereas O'Neill and Whaley (2022) analyse these demands in the VIX ETF market. Furthermore, we find evidence to suggest that arbitrage opportunities provided by the introduction of a new security attract new capital to the uranium sector as both constituent and non-constituent stocks are impacted.…”

Section: Introductionmentioning

confidence: 99%

Financial innovation in the uranium mining sector: analysis of an exchange-traded fund and its impact on trading characteristics of uranium stocks

Bentley¹,

Liu

2023

JAL

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PurposeThe purpose of this study is to examine the impact of a recent innovation in the uranium market, the Global X Uranium Exchange-Traded Fund (URA), on the trading characteristics of constituent and non-constituent stocks.Design/methodology/approachThe authors analyse bid-ask spread measures, relative effective spreads and adverse selection costs to assess changes in information asymmetry among uranium stocks. The authors also study abnormal returns to assess the impact of URA on the market.FindingsOver a three-month period, following the introduction of URA, the authors find uranium stocks display decreased bid-ask spread measures, driven by reductions in information asymmetry. Relative effective spreads decrease by 36% after the introduction of URA, and adverse selection costs decline by 24% over the same period. Uranium stocks experience a significant positive abnormal return of 5.0% the day after the introduction of URA with subsequent price reversals. These suggest that the introduction of URA prompted uninformed traders to rebalance portfolios and migrate to the less information-sensitive Exchange-Traded Fund (ETF), causing temporary deviations in trading characteristics.Originality/valueThe authors demonstrate that the introduction of new financial securities to the market can have a significant impact on the trading characteristics of related equities. As URA is the only ETF in the uranium sector, the authors thereby avoid the influence of multiple ETFs that may have impacted previous studies.

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Section: Introductionmentioning

confidence: 99%