The Market Liquidity of Taiwan Dividend+ ETF and its Underlying Stocks
Date Issued
2008
Date
2008
Author(s)
Wang, Sheng-Mei
Abstract
The effects of the introduction of composite security to their underlying portfolio have always been a principal issue among scholars and practitioners. While previous literatures have enhanced our understanding of how these financial products would change the market liquidity theoretically, the empirical works emerging from these studies are somewhat ambiguous. In this paper, we examine the liquidity changes of the underlying stocks before and after the commencement of Taiwan Dividend+ ETF. Our finding shows that the trading activities of the component securities increase significantly over the first fifty days of the advent of this ETF while changes in liquidity cost provide weak evidence of increased liquidity. We also compare the liquidity of the basket itself with that of its underlying portfolio and find that the Taiwan Dividend+ ETF is more liquid than its component stocks. Overall, the results of this study suggest that the listing of ETF have a beneficial impact on the market liquidity for the underlying stocks.
Subjects
liquidity
ETF
basket security
Type
thesis
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