The heterogeneous volume-volatility relations in the exchange-traded fund market: Evidence from China |
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| Institution: | 1. International Business School and School of Finance, Zhejiang Gongshang University, China;2. Business School, East China University of Political Science and Law, China;3. Adam Smith Business School, University of Glasgow, United Kingdom;4. Chinese Academy of Finance and Development, Central University of Finance and Economics, China |
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| Abstract: | We decompose the trading volume of exchange-traded funds (ETFs) into specific components according to different triggers of trades: (i) private information, (ii) disagreement among investors due to their different opinions on public information or having different information, and (iii) investor impatience. Then we examine the particular impact of each type of ETF trade on the market volatility of the tracked index. Focusing on the three ETFs tracking the CSI 300, we show that ETF trades stemming from investor disagreement are a key determinant of CSI 300 volatility, dominating other factors considered. Liquidity ETF trades can partially explain CSI 300 volatility. However, little evidence supports a significant correlation between privately informed trades of ETFs and CSI 300 volatility. |
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| Keywords: | Disagreement among investors Exchange-traded funds Liquidity trades Market volatility Private information Trading volume G12 G14 |
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