Exchange Trades Funds and Constituent Price Informativeness

Abstract: This thesis aims to investigate the relationship between exchange-traded funds and the price informativeness of their constituents using daily data on the proxies ETF coverage and price non-synchronicity over a period of 4.5 years, and finds some statistically significant evidence of a negative relationship. Additionally, it examines potential underlying drivers of this relationship using turnover and relative bid-ask spreads as dependent variables, finding weak and somewhat contradicting relationships. Thirdly, it expands from previous research by differentiating between domestic and foreign ETF coverage, and finds that different treatment of outliers yield statistically significant and somewhat differentiated implication of Swedish contra foreign ETF coverage for the price informativeness of Swedish stocks. Our findings are compared and contrasted to previous research on the ETF coverage-price informativeness relationship, and the merit of previously argued explanations for the relationship is evaluated.