Professor Francesco Franzoni, University of Lugano and the Swiss Finance Institute

We study whether exchange traded funds (ETFs) impact the volatility of their underlying stocks. Using mechanical variation in ETF ownership, we present evidence that stocks owned by ETFs exhibit significantly higher intraday and daily volatility. A one standard deviation higher ETF ownership is associated with daily stock volatility higher by 16 per cent. The driving channel appears to be arbitrage activity between ETFs and the underlying stocks. The effects are stronger for stocks with high limits to arbitrage. Finally, the evidence that ETF ownership increases stock turnover suggests that ETF arbitrage adds a new layer of trading to the underlying securities.

Speaker bio

Francesco Franzoni is Professor of Finance at the University of Lugano and Senior Chair of the Swiss Finance Institute. He received his PhD in Economics from the Massachusetts Institute of Technology (MIT) in 2002. Professor Franzoni’s research interests include empirical asset pricing, with a specific regard to limits of arbitrage, institutional investors, and liquidity provision.

Address

Trumpington St
Cambridge, CB2 1AG,
United Kingdom

Date & time

Date: 22 April 2014
Start Time: 10:30
End Time: 12:00

Audience

Open to: Members of the University of Cambridge

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Event location


Trumpington St
Cambridge, CB2 1AG,
United Kingdom

Event timings

Date: 22 April 2014
Start Time: 10:30
End Time: 12:00