| dc.description.abstract | I examine how exchange-traded funds (ETFs) affect incentives to produce information
about individual securities. Due to their low trading costs, ETFs can be used to trade on
information about less liquid and more constrained stocks that have large weights in the
ETF. Using introductions of options on sector ETFs as events that reduce costs of trading
on private information, I find that small stocks with large ETF-weight experience an
increase in price informativeness compared to similar low ETF-weight stocks. In contrast,
I do not find such an effect for large stocks. I conclude that by providing a cheaper way
to trade on stock-specific information, ETFs facilitate information acquisition about large
ETF-weight stocks, leading to more informative prices. | en_US |
