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Changes in the liquidity of closed-end country funds after the introduction of World Equity Benchmarks

  • Chen, Honghui
  • Morse, Joel N.
  • Nguyen, Hoang Huy

In 1996, the first exchange-traded funds (ETFs) designed to track a subset of the Morgan Stanley Capital International country indices were approved under the name World Equity Benchmarks (acronym "WEBS"(TM)). We examine the impact of early WEBS-trading on the liquidity of corresponding closed-end country funds (CECFs), previously one of the main avenues for retail investors to achieve country-specific equity exposure. We document a decline in both the trading volume and the trading frequency for CECFs, suggesting that some investors migrate to WEBS. At the same time, the market depth for CECFs increases and the bid-ask spread for CECFs decreases following the introduction of WEBS. Our results support the hypothesis that despite the decline in volume and trading frequency, the liquidity of CECFs is favorably affected by the advent of WEBS.

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Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 49 (2009)
Issue (Month): 3 (August)
Pages: 1081-1094

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Handle: RePEc:eee:quaeco:v:49:y:2009:i:3:p:1081-1094
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620167

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  2. Raman Kumar & Atulya Sarin & Kuldeep Shastri, 1998. "The Impact of Options Trading on the Market Quality of the Underlying Security: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 53(2), pages 717-732, 04.
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  7. Harper, Joel T. & Madura, Jeff & Schnusenberg, Oliver, 2006. "Performance comparison between exchange-traded funds and closed-end country funds," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 104-122, April.
  8. Dilip K. Patro, 2005. "Stock Market Liberalization and Emerging Market Country Fund Premiums," The Journal of Business, University of Chicago Press, vol. 78(1), pages 135-168, January.
  9. Patro, Dilip Kumar, 2001. "Market Segmentation and International Asset Prices: Evidence from the Listing of World Equity Benchmark Shares," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(1), pages 83-98, Spring.
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