Is there a dark side to exchange traded funds? An information perspective

Doron Israeli, Charles M. C. Lee, Suhas A. Sridharan

Research output: Contribution to journalArticle

18 Citations (Scopus)

Abstract

We examine whether an increase in ETF ownership is accompanied by a decline in pricing efficiency for the underlying component securities. Our tests show an increase in ETF ownership is associated with (1) higher trading costs (bid-ask spreads and market liquidity), (2) an increase in “stock return synchronicity,” (3) a decline in “future earnings response coefficients,” and (4) a decline in the number of analysts covering the firm. Collectively, our findings support the view that increased ETF ownership can lead to higher trading costs and lower benefits from information acquisition. This combination results in less informative security prices for the underlying firms.
Original languageEnglish
Article number36
Pages (from-to)1048
Number of pages1083
JournalReview of Accounting Studies
Publication statusPublished - Sep 18 2017

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