ETFs increase efficiency of markets, new study shows

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Financial Times 13h ago

ETFs increase efficiency of markets, new study shows - Financial Times

Quick Summary:

Earlier analysis cited in Clare’s paper argues that rising ETF ownership could lead to mispricing effects, as an increase in commonality of ownership across a market might weaken the link between an earnings announcement and the price of the relevant stock.

In addition, the analysis found the improvement in pricing efficiency was “largely absent” in emerging markets, where uptake of ETFs is typically far lower than in developed markets such as the US and Europe.

UCLA’s Haddad believed there were “reasons to be somewhat sceptical” about the argument that if people increasingly trade the broad market, rather than individual stocks, that trading becomes more efficient.“The ETFs themselves do not try to time the market, it is the flow in and out of them that does so.