Illiquidity and stock returns: cross-section and time-series effects
We also investigate factors that may affect the gap between ETF and underlying liquidity. First, when an ETF is traded on the market, it has its own trading volume, return volatility, market capitalization, and market price. These trading characteristics reflect both inventory costs and the information asymmetry of the traded security (Stoll, 2000; Van Ness et al., 2001). In particular, we look at discrepancies in market capitalization and trading volume between an ETF and its underlying stocks.
The information provided on the Site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. There can be no assurance that a liquid market will be maintained for ETF shares. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs. Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions. Important Risk Information
There can be no assurance that a liquid market will be maintained for ETF shares.
Additionally, we provide a broader analysis of factors affecting liquidity spillover, including macroeconomic variables and ETF arbitrage activities. First, our research sheds more light on the liquidity spillover topic, which is still under-researched despite its significance. Liquidity plays a crucial role in the financial market, affecting asset pricing and market stability (e.g., Pástor & Stambaugh, 2003). As a result, the simultaneous dry-up of liquidity between different asset classes or geographic markets is of great interest to market regulators, practitioners, and researchers.
Find the right ETF for you
Fidelity’s factor ETFs aim to provide exposure to the desired factor while minimizing risk. The latest Fidelity U.S. Multifactor ETF (FLRG) targets U.S companies with strong exposure to value, quality, low volatility, and momentum factors with constrained exposure to the size factor. Liquidity
The ability to quickly buy or sell an investment in the market without impacting its price. An ETF has two main components – liquidity of the ETFs traded on the exchange and the liquidity of the individual assets in an ETF.
The first U.S. active ETF, the Bear Stearns Current Yield Fund, was launched in 2008, fifteen years later than the birth of the first passive U.S. ETF.1 Although passive ETFs still dominate the ETF industry, accounting for 98% of industry assets under management (AUM), active ETFs have experienced impressive growth. Compared to mutual funds, active ETFs provide investors with a relatively liquid and convenient way to employ alpha-generating strategies, as they offer intraday liquidity, tax efficiency, and lower fees.
