The impact of ETF index inclusion on asset prices

Last registered on November 05, 2021
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Pre-Trial

Trial Information

General Information

Title
The impact of ETF index inclusion on asset prices
RCT ID
AEARCTR-0008498
Initial registration date
November 04, 2021

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
November 05, 2021, 8:40 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country
United States of America
Region

Primary Investigator

Name
John Duffy
Affiliation
University of California, Irvine
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Other Primary Investigator(s)

PI Name
Jean Paul Rabanal
PI Affiliation
University of Stavanger
Contact Investigator
PI Name
Olga Rud
PI Affiliation
University of Stavanger
Contact Investigator
PI Name
Daniel Friedman
PI Affiliation
UC Santa Cruz and University of Essex
Contact Investigator

Additional Trial Information

Status
On going
Start date
2021-11-04
End date
2022-01-31
Keywords
Behavior, Lab
Additional Keywords
Index premium, Exchange Traded Funds (ETFs), Asset pricing, Behavioral finance, Experimental economics
JEL code(s)
C92, G12, G11, D53
Secondary IDs
IFREE Small Grants
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
We study how Exchange Traded Funds (ETFs) affect assets prices under two distinct environments: (1) when all three assets are included in the index, and (2) when one of the two identical assets is excluded from the index and replaced by an equivalent identical asset. The authorized participants (APs) are modeled via bots that create and redeem ETF shares by scanning the order book of the underlying assets. We ask whether inclusion of an asset in the ETF index results in an index premium and whether this persists even after short-selling is allowed.
External Link(s)

Registration Citation

Citation
Duffy, John et al. 2021. "The impact of ETF index inclusion on asset prices." AEA RCT Registry. November 05. https://doi.org/10.1257/rct.8498-1.0
Sponsors & Partners

Sponsors

Experimental Details

Interventions

Intervention(s)
We study inclusion or exclusion of assets from an Exchange Traded Fund (ETF) index asset in experimental asset markets.
Intervention Start Date
2021-11-05
Intervention End Date
2022-01-31

Primary Outcomes

Primary Outcomes (end points)
Asset prices, order flows and the volume of trade from experimental asset markets.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
The experimental asset markets involve three assets, A, B, C and a composite asset D, proxying for an Exchange Traded Fund (ETF). The payoff to each asset depends on the randomly determined state of the world, and participants know all possible states. Asset D is provided by a computerized trader who creates and redeems shares of asset D while maintaining a zero net supply of that ETF asset. In treatment 1, all three assets are included in the composite asset D. In treatment 2, asset B is excluded from the composite asset D and replaced by another unit of asset C, and asset B and C have identical payoff structures. Treatment 3 is the same as treatment 2 but we allow for short-selling of assets A, B and C.
Experimental Design Details
Randomization Method
Randomization of states of the world is done by a computer program.
Randomization Unit
Session level, groups of 10-16 subjects
Was the treatment clustered?
Yes

Experiment Characteristics

Sample size: planned number of clusters
At least 5 groups per each of the three treatments, so at least 15 sessions
Sample size: planned number of observations
Seven markets per session, at least 15 sessions, so at least 105 markets.
Sample size (or number of clusters) by treatment arms
At least 5 sessions of each treatment. At least 10 subjects per session, so at least 150 total subjects.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
UCI Institutional Review Board
IRB Approval Date
2019-05-23
IRB Approval Number
UCI IRB HS#2011-8378
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials