Determinants of Tracking Error in German ETFs - The Role of Market Liquidity

2014 ◽  
Author(s):  
Friedrich Osterhoff ◽  
Christoph Kaserer
Keyword(s):  
Tracking Error ◽  
Market Liquidity

How to Assure Stable Development in Unstable Financial Environment?

2007 ◽  
pp. 4-26 ◽  
Author(s):  
M. Ershov
Keyword(s):  
Stock Market ◽  
Developed Countries ◽  
Market Liquidity ◽  
Market Mechanisms ◽  
Russian Economy ◽  
The Developed Countries ◽  
Russian Stock Market ◽  
Stable Development ◽  
Financial Environment

Growing involvement of Russian economy in international economic sphere increases the role of external risks. Financial problems which the developed countries are encountered with today result in volatility of Russian stock market, liquidity problems for banks, unstable prices. These factors in total may put longer-term prospects of economic growth in jeopardy. Monetary, foreign exchange and stock market mechanisms become the centerpiece of economic policy approaches which should provide for stable development in the shaky environment.

Algorithmic Trading and the Market for Liquidity

2013 ◽  
Vol 48 (4) ◽  
pp. 1001-1024 ◽  
Author(s):  
Terrence Hendershott ◽  
Ryan Riordan
Keyword(s):  
Supply And Demand ◽  
Market Liquidity ◽  
Algorithmic Trading ◽  
Limit Order ◽  
Market Order

AbstractWe examine the role of algorithmic traders (ATs) in liquidity supply and demand in the 30 Deutscher Aktien Index stocks on the Deutsche Boerse in Jan. 2008. ATs represent 52% of market order volume and 64% of nonmarketable limit order volume. ATs more actively monitor market liquidity than human traders. ATs consume liquidity when it is cheap (i.e., when the bid-ask quotes are narrow) and supply liquidity when it is expensive. When spreads are narrow ATs are less likely to submit new orders, less likely to cancel their orders, and more likely to initiate trades. ATs react more quickly to events and even more so when spreads are wide.

A key determinant of commodity price Co-movement: The role of daily market liquidity

2019 ◽  
Vol 81 ◽  
pp. 170-180 ◽  
Author(s):  
Yongmin Zhang ◽  
Shusheng Ding ◽  
Eric M. Scheffel
Keyword(s):  
Commodity Price ◽  
Market Liquidity

Market Liquidity and Ambiguity: The Certification Role of Corporate Governance

2014 ◽  
Vol 49 (4) ◽  
pp. 643-668 ◽  
Author(s):  
Christine X. Jiang ◽  
Jang-Chul Kim ◽  
Emre Kuvvet
Keyword(s):  
Corporate Governance ◽  
Market Liquidity

Determinants of tracking error in German ETFs – the role of market liquidity

2016 ◽  
Vol 42 (5) ◽  
pp. 417-437 ◽  
Author(s):  
Friedrich Osterhoff ◽  
Christoph Kaserer
Keyword(s):  
Fixed Effects ◽  
Tracking Error ◽  
Market Liquidity ◽  
Special Focus ◽  
Exchange Traded Funds ◽  
Content Type ◽  
Tracking Ability ◽  
Liquidity Cost ◽  
Underlying Stocks ◽  
The Impact

Purpose – The purpose of this paper is to contribute to a better understanding of the impact of market liquidity on the daily tracking error of exchange-traded funds (ETFs). It puts a special focus on the liquidity cost of individual underlying stocks as well as the process of creation/redemption of ETF shares as key determinants of tracking ability. Design/methodology/approach – The study is based on daily observations of fund data for eight fully replicating German equity ETFs for July 2001-October 2013. A regression model with fund fixed effects is chosen to determine the effect of liquidity cost, creation/redemption and other control variables on daily tracking error. Data were compiled from issuer websites and Datastream. Proprietary XETRA Liquidity Measure, which was used as proxy for liquidity cost was supplied by Deutsche Börse. Findings – The study finds daily tracking error to significantly depend on the liquidity of underlying stocks. This finding emerges even though the ETFs in this study predominantly use in-kind creation/redemption. Even after controlling for creation/redemption, the liquidity impact remains basically unchanged. One reason might be imperfect replication of index weights: Either the in-kind-basket delivered in the course of creation/redemption does not perfectly match the benchmark-weights or the internal rebalancing of weights causes liquidity cost. Originality/value – To the best of the authors’ knowledge, this is the first paper that uses a specific liquidity measure for each single stock underlying an ETF. The findings extend the literature by corroborating the view that liquidity of individual stocks in the underlying portfolio has an impact on tracking error.

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