TY - JOUR T1 - Seeking Optimal ETF Execution<br/>in Electronic Markets JF - The Journal of Trading SP - 109 LP - 119 DO - 10.3905/jot.2014.9.3.109 VL - 9 IS - 3 AU - Kiran Pingali AU - Jingle Liu AU - Sanghyun Park AU - Michael Baradas Y1 - 2014/06/30 UR - https://pm-research.com/content/9/3/109.abstract N2 - Exchange-traded funds (ETF) have had a phenomenal run in recent years, with both their number and assets under management (AUM) growing dramatically. Despite this rapid growth, the average daily exchange-traded volume of these ETFs has stalled and now appears to be in decline. However, on-screen liquidity is not a true reflection of an ETF’s total implied liquidity, which is composed of liquidity of the underlying basket, related derivatives, correlated trading vehicles, and exchange-traded volume. Because of these properties, traders need to understand the uniqueness of ETF market microstructure and use the right trading solutions to achieve optimal execution efficiency. Using empirical statistical analysis, the authors show that for small orders on relatively liquid ETFs, institutional clients are better off using broker execution algorithms to extract liquidity without creating significant market impact. For large orders on relatively illiquid ETFs, institutional clients should leverage an electronic solution that can anonymously source block liquidity from market makers to achieve optimal execution.TOPICS: Exchange-traded funds and applications, quantitative methods ER -