IDEAS home Printed from https://ideas.repec.org/a/eee/finmar/v75y2025ics1386418125000230.html
   My bibliography  Save this article

ETF effects: The role of primary versus secondary market activities

Author

Listed:
  • Comerton-Forde, Carole
  • Marta, Thomas

Abstract

High-frequency traders (HFTs) dominate secondary market trading in exchange-traded funds (ETFs) but do not engage in ETF arbitrage. By contrast, primary market arbitrageurs enforce the law of one price, but their activities are infrequent and limited by arbitrage costs. We find that primary market activity is associated with increased volatility and illiquidity in overweighted ETF constituent stocks, while HFT activity is linked to narrower bid–ask spreads. Using a quasi-natural experiment in Japan, we show that while ETF primary market activity can temporarily disrupt market quality, the liquidity benefits of secondary market trading ultimately outweigh these negative effects.

Suggested Citation

  • Comerton-Forde, Carole & Marta, Thomas, 2025. "ETF effects: The role of primary versus secondary market activities," Journal of Financial Markets, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:finmar:v:75:y:2025:i:c:s1386418125000230
    DOI: 10.1016/j.finmar.2025.100983
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1386418125000230
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.finmar.2025.100983?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finmar:v:75:y:2025:i:c:s1386418125000230. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/finmar .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.