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Stoyu Ivanov
''Comparative Analysis of ETF and Common Stock Intraday Bid-Ask Spread Behavior''
( 2017, Vol. 37 No.2 )
In this study we approach the issue of ETF similarity with common stock with regards to their intraday bid-ask spread behavior. We use 18 stocks and 18 ETFs listed in the US to examine if the well documented in the literature J-shaped pattern of stocks bid-ask spread during the trading day is present in both stocks and ETFs today, which will help us understand better the stock characteristics of ETFs. We find that the factors identified as affecting stocks, activity, risk, information and competition, also influence ETFs but the impact is smaller. We also document elevated bid-ask spreads at the opening of the trading day with the stock spread being higher than ETFs almost twofold. The spreads taper during the day for both ETFs and stocks but increase around closing time for ETFs only, which means that the documented J-shaped pattern is present only in ETFs. This paper extends the work of Chelley-Steeley and Park (2011) who study intraday bid-ask spread behavior for London listed ETFs and of Ascioglu, Aydogdu, Chou and Kugele (2006) who study a sample of ETFs, NYSE and NASDAQ stocks intraday bid-ask spread components. The documented pattern in the prior literature is for NYSE listed stocks, the McInish and Wood (1992) study documented for the first time the J-shaped pattern a while ago. The tapering pattern is detected for NASDAQ stocks by Chan, Christie and Schultz (1995) who suggest that the non-J-shaped pattern is due to the different trading venue.
Keywords: Exchange Traded Funds, ETF, Common Stock, Bid-Ask Spread
G2 - Financial Institutions and Services: General
Manuscript Received : Mar 22 2017 Manuscript Accepted : Apr 22 2017

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