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The volatility-liquidity dynamics of single-stock ETFs

Author

Listed:
  • Zhao, Le
  • Nguyen, Vinh Huy
  • Li, Chen

Abstract

Single-stock exchange-traded fund (SSETF) is the latest innovation in the ETF arrays of products. We examine the dynamics of the volatility-liquidity relationship between these SSETFs and their underlying stocks. We find that SSETFs have higher volatility and lower liquidity than the underlying stocks. During periods of higher stock volatility, the liquidity of SSETFs is significantly reduced. We also find evidence that SSETF traders can mitigate the liquidity problem by using intermarket sweep orders and routing orders to lit exchanges.

Suggested Citation

  • Zhao, Le & Nguyen, Vinh Huy & Li, Chen, 2024. "The volatility-liquidity dynamics of single-stock ETFs," Finance Research Letters, Elsevier, vol. 69(PB).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324011929
    DOI: 10.1016/j.frl.2024.106163
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    Cited by:

    1. Zong Ke & Jingyu Xu & Zizhou Zhang & Yu Cheng & Wenjun Wu, 2024. "A Consolidated Volatility Prediction with Back Propagation Neural Network and Genetic Algorithm," Papers 2412.07223, arXiv.org, revised Feb 2025.

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    More about this item

    Keywords

    Exchange-traded funds; Volatility; Liquidity; Intermarket sweep orders; Lit exchanges;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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