University essay from

Author: Max Hansson; Oscar Perers; [2018-07-16]

Keywords: Exchange traded funds; volatility; arbitrage;

Abstract: This thesis explores the effect ownership by exchange traded funds have on the volatility of their underlying securities. We build upon the research conducted by Ben-David, Franzoni and Moussawi (2017a) and first replicate the results presented by them that ownership by exchange traded funds increase volatility. Building on the replicated results, we extend their research by replicating their findings in a larger sample covering practically all publicly traded stocks in the U.S. market. Furthermore, we group the ETFs according to investment style and investigate how ownership by various types of funds may contribute to volatility differently. In all three tests conducted we find a positive and significant relation between a security’s volatility and ETF ownership. Additionally, we find that the different groups of funds contribute differently to the volatility of securities.

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