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ETF ownership and informational efficiency of underlying stocks: Evidence from China

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  • Wu, Weili
  • Zhu, Feifei

Abstract

This study investigates how exchange-traded fund (ETF) activity affects the informational efficiency of its underlying stocks in the Chinese market, which has several different features from developed markets. We show that increased ETF ownership improves stock liquidity and attracts informed investors, resulting in higher pricing efficiency. By exploiting the heterogeneity of four different types of ETFs in the Chinese market, we show that the informational role of ETFs depends on whether they can be used for intraday trading, which significantly improves underlying securities' liquidity. Our study adds to the ongoing debate on the economic consequences of financial innovations and sheds light on the informational role of ETFs for emerging markets.

Suggested Citation

  • Wu, Weili & Zhu, Feifei, 2023. "ETF ownership and informational efficiency of underlying stocks: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23000719
    DOI: 10.1016/j.pacfin.2023.102005
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    1. Chen, Guanhua & Liu, Xiangli & Liu, Xiao & Zhao, Zhihua, 2024. "ETF ownership and stock pricing efficiency: The role of ETF arbitrage," Finance Research Letters, Elsevier, vol. 62(PA).

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    More about this item

    Keywords

    Exchange-traded funds (ETF); Informational efficiency; Stock liquidity; Informed trading;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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