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ETF indexing strategies and asset prices: Experimental evidence

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  • Bossaerts, Peter
  • Duffy, John
  • Rabanal, Jean Paul
  • Rud, Olga A.
  • Yadav, Nitin

Abstract

We experimentally examine whether and how the indexing strategy used by exchange traded funds (ETFs) affects the prices of the constituent assets. We study this issue in both the primary market (ETF creations and redemptions using bots as authorized participants) and the secondary market. The experiment includes three environments: (i) no ETF, (ii) an equal weighted ETF, and (iii) an unequal, market cap weighted ETF. We find that compared to the baseline of no ETFs, the introduction of ETFs significantly affects the relative prices of the constituent assets in the equal weighted ETF but not in the unequal weighted, market-cap based ETF. The introduction of ETFs also affects order imbalances and bid-ask spreads particularly for the asset in shortest supply.

Suggested Citation

  • Bossaerts, Peter & Duffy, John & Rabanal, Jean Paul & Rud, Olga A. & Yadav, Nitin, 2026. "ETF indexing strategies and asset prices: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 241(C).
    • Handle: RePEc:eee:jeborg:v:241:y:2026:i:c:s0167268125004597
    DOI: 10.1016/j.jebo.2025.107342
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    References listed on IDEAS

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