ETFs do not contribute to market volatility
Exchange traded funds (ETFs) have retained their liquidity and performed better than expected during the recent market correction in February, according to Vanguard’s analysis.
The firm said that its recent market data did not find any evidence to support the claim that ETFs contributed or worsened market volatility.
What is more, according to the analysis, during the week of February when global markets felt the impact of the US market correction, the Australian ETF market experienced a market uptick in volumes traded.
Vanguard’s head of market strategy and communications, Robin Bowerman, said: “The volatility through February which saw the Australian sharemarket down 4.93 per cent, followed by a bounce back of 4.73 per cent, has alerted investors to the reality that the benign market conditions of the past five years cannot continue indefinitely.”
“As markets return to more orderly trading patterns, our analysis captured how investors reacted and how investors reacted and how ETFs operated during a time of higher market volatility,” he said.
However, the questions were raised about the potential for ETF trading to contribute to an increase in market volatility or lack of liquidity during of market stress.
Additionally, Vanguard said despite the added volatility in the market and the increase in trading activity, spreads in its Australian ETFs only widened marginally and remained well within normal range.
“While it is legitimate to question potential impacts when significant structural change in a product category is happening, based on the recent market gyrations there is little evidence to suggest that ETFs contribute to greater volatility during market events,” Bowerman said.
AUTHOR
Oksana Patron
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