Article

Inter-market competition for exchange traded funds

Journal of Economics and Finance 05/2007; 31(2):251-267. DOI:10.1007/BF02751646 pp.251-267

ABSTRACT We examine how the different mix of informed and liquidity trading in the market for ETFs affects the nature of inter-market
competition. We find that both the characteristics of the securities and the structures of the competing markets jointly determine
the nature of inter-market competition. Given the superior execution quality on the ECNs and the low adverse selection costs
in the ETF market, anonymous market such as the ECNs, attract both liquidity and informed traders. We also find that markets
compete in a subset of ETFs. In addition, we find that quotebased competition is prevalent in the market for ETFs.

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Keywords

characteristics
 
different mix
 
ETF market
 
ETFs
 
inter-market competition
 
liquidity trading
 
low adverse selection costs
 
quotebased competition
 
securities
 
structures
 
subset
 
superior execution quality
 
traders