Financial Innovation and Informed Trading:Evidence from Chinese Industry ETFs
Industry exchange-traded funds(IETFs)are designed to target as specific industries,providing investors with a low-cost,high-liquidity financial innovation tool.Combining the margin financing and refinancing systems in the Chinese financial market,this article uses(Huang,et al.,2020)method to construct industry ETFs to analyze the pricing of ETFs from the perspective of hedging.The study finds that:Firstly,under the hedging strategy of going long underlying stock/short industry ETF,when a listed company announces positive earnings surprise information,informed traders will significantly increase their long position in the underlying stock while simultaneously increasing their short position in the industry ETFs to which the stock belongs.This indicates that industry ETFs facilitate informed traders to use firm-specific information to hedge industry risks and realize the hedging function.Secondly,industry ETFs reduce the idiosyncratic volatility and illiquidity of their constituent stocks.This means that industry ETFs allow investors to benefit from firm-specific information.Consequently,stock prices will more fully reflect firm-level information,thus improving market efficiency.Finally,the introduction of refinancing facilitates informed traders into hedginge industry risks,indicating that Chinese refinancing system provides investors with diversified options to mitigate industry risks.
Industry ETFsinformed tradingmarket efficiencyfinancial innova-tion
NETL
NSTL
万方数据
