The Relationship Between the Demand for Leverage and Management Fees
This article discusses what academic research says about the relationship between the demand for leverage and management fees.
Arbitrage and the Trading Costs of ETFs
This article examines ETF creations and redemptions around price deviations and finds that the expected arbitrage trades are relatively rare in a broad sample of equity index ETFs. In the absence of these trades, price deviations persist much longer. Creation and redemption activity appears to be constrained when exchange conditions would lead to a costlier arbitrage trade, and the size of the price deviations mainly impact the likelihood rather than the amount of trading. The authors also find some evidence that creations and redemptions are less likely to trade on price deviations when they would be required to trade the underlying stocks against broad market movements. Their results suggest that several factors may discourage the built-in ETF arbitrage mechanism and that investors may receive poorer trade execution in these conditions as a result.
Shorting ETFs: A look into the ETF Loan Market
We find that exchange-traded fund (ETF) lending fees are significantly higher than stock lending fees. Two institutional features unique to ETFs play significant roles in explaining the high fees. First, regulations restrict investment companies, such as mutual funds and ETFs, from owning ETFs. As these institutions are key lenders, their absence reduces the lendable supply in the ETF loan market. Second, while the create-to-lend (CTL) mechanism alleviates supply constraints when borrowing demand increases, its efficacy is limited by the associated costs and frictions. Our results speak to the limits to arbitrage in the ETF markets.
How to Measure the Liquidity of Cryptocurrency?
In this blog we discuss the academic research surrounding the question of cryptocurrency liquidity. How to Measure the Liquidity of Cryptocurrency? Brauneis, Mestel , Riordan and TheissenJournal of Banking and Finance, 2021A version of this [...]
How Does ETF Liquidity Affect ETF Returns, Volatility, and Tracking Error?
Liquidity risk and exchange-traded fund returns, variances, and tracking errors Kyounghun Bae, Daejin KimJournal of Financial EconomicsA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our [...]
Mutual Fund Trading When No One Is Watching: It’s Not Pretty
Trading out of sight: An analysis of cross-trading in mutual fund families Alexander Eisele, Tamara Nefedova, Gianpaolo Parise, Kim Peijnenburg, Journal of Financial EconomicsA version of this paper can be found hereWant to read our summaries [...]
The market impact of rebalancing factor investing strategies
Transaction Costs of Factor-Investing Strategies Feifei Li, Tzee-Man Chow, Alex Pickard & Yadwinder GargFinancial Analysts JournalA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic [...]