TY - JOUR T1 - Exchange-Traded Funds: <em>Liquidity and Informed Trading Levels</em> JF - ETFs and Indexing SP - 18 LP - 31 VL - 2009 IS - 1 AU - James A Bennett AU - Francis J Kerins, Jr. Y1 - 2009/09/21 UR - http://guides.pm-research.com/content/2009/1/18.abstract N2 - This article analyzes the relative liquidity and level of informed trading of exchange-traded funds and individual equities for a comprehensive sample of ETFs. Theoretical work suggests that ETFs should offer a number of benefits to investors relative to trading in the underlying securities. Controling for trading characteristics (e.g., trading volume), the authors document that ETFs offer significantly greater depths than individual equities. However, they also find that bid-ask spreads on ETFs are higher than expected. Using a composite measure of liquidity, the authors find strong support for the overall hypothesis that ETFs offer higher liquidity levels than individual equities. This is attributed to the lower levels of informed trading in ETFs, as implied by the lower adverse selection components of ETF bid-ask spreads. ER -