The adverse selection component of exchange traded funds

Patricia L. Chelley-Steeley; Keebong Park

doi:10.1016/j.irfa.2009.09.003

The adverse selection component of exchange traded funds

Patricia L. Chelley-Steeley, Keebong Park

Research output: Contribution to journal › Article › peer-review

Abstract

The aim of our paper is to examine whether Exchange Traded Funds (ETFs) diversify away the private information of informed traders. We apply the spread decomposition models of Glosten and Harris (1998) and Madhavan, Richardson and Roomans (1997) to a sample of ETFs and their control securities. Our results indicate that ETFs have significantly lower adverse selection costs than their control securities. This suggests that private information is diversified away for these securities. Our results therefore offer one explanation for the rapid growth in the ETF market.

Original language	English
Pages (from-to)	65-76
Number of pages	12
Journal	International Review of Financial Analysis
Volume	19
Issue number	1
DOIs	https://doi.org/10.1016/j.irfa.2009.09.003
Publication status	Published - Jan 2010

Keywords

sprea
adverse selection costs
exchange traded funds

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10.1016/j.irfa.2009.09.003

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The adverse selection component of exchange traded funds

Abstract

Keywords

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