Understanding exchange traded funds
- July 16, 2019
- UCI economist earns grant to run experiments exploring the value of a commonly used investment instrument for asset pricing and trading volume
John Duffy, economics professor and co-director of the Experimental Social Sciences Laboratory (ESSL), has received a $10,000 grant from the International Foundation for Research in Experimental Economics (IFREE) to study how exchange traded funds (ETFs) impact overall market pricing and trading.
“An ETF is an investment vehicle that aims to track the performance of a specific index much like mutual funds,” explains Duffy. “What is less well known is how the presence of ETFs affects the pricing of the assets that make up the ETF, and that is the question this research explores.”
Using ESSL research participants, he will conduct a series of novel computer-simulated lab experiments to better understand the role of ETFs on price discovery and market trading volume in asset markets with and without ETFs. The differences in the pricing of the assets in the different environments will clarify the impact of ETFs on pricing and volume.
Work on this one-year study began in May.
Duffy joined the UCI faculty in 2014 following a professorial post at the University of Pittsburgh where he was also director of the Pittsburgh Experimental Economics Laboratory. His research uses mathematical models, laboratory experiments and computer simulations to better understand how individuals act strategically, use information, form expectations, make intertemporal economic decisions and solve coordination problems. His research has been funded by the National Science Foundation and has appeared in the leading economics journals including the American Economic Review and the Review of Economic Studies. He holds a Ph.D. in economics from UCLA.
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