Index trading and portfolio risk

We use data from the Oslo Stock Exchange. Our findings indicate that trading in ETFs is correlated with the return variance on a portfolio of the underlying index constituents. We also find correlation between ETF trading and the return variance on portfolios with non-constituents. The correlation b...

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Bibliographic Details
Published in:Journal of economics and finance 2017, Vol.41 (1), p.78-99
Main Authors: Kvamvold, Joakim, Lindset, Snorre
Format: Article
Language:English
Subjects:
Economics
Economics and Finance
Finance
Futures
Growth stocks
Hypotheses
Index funds
Investments
Macroeconomics/Monetary Economics//Financial Economics
Mutual funds
Prices
Securities markets
Stock exchanges
Volatility
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Summary:We use data from the Oslo Stock Exchange. Our findings indicate that trading in ETFs is correlated with the return variance on a portfolio of the underlying index constituents. We also find correlation between ETF trading and the return variance on portfolios with non-constituents. The correlation between ETF trading and the return variance on the portfolio of the underlying index constituents is higher than for the other portfolios, but we cannot claim causality. We do not find similar effects from flows to index-linked mutual funds.
ISSN:1055-0925
1938-9744
DOI:10.1007/s12197-015-9334-6