Liquidity of Corporate Bond Exchange Traded Funds: An Empirical Analysis of the Underlying Securities of ETFs

Ines Engemann

Student thesis: Master thesis


This thesis examines the measurement of liquidity of Corporate Bond Exchange Traded Funds (ETFs). First, an insight into the current position of ETFs, and in particular Bond ETFs is given. This is continued by defining liquidity in general and in the context of ETFs. After outlining the methodology used in this thesis, empirical evidence on liquidity measures, ETFs and bonds is briefly presented. Contributions are made by an explanation of the data cleaning process for relevant Bond ETFs and a description of relevant variables in the data. The empirical analysis is separated into three parts, where all parts are based on a dataset provided from a data provider called ETF Global. With the connection to a Trade Reporting and Compliance Engine (TRACE) data base, the basket of underlying securities is analyzed and the composition of the ETFs is used to predict the liquidity of the ETF itself. Afterwards, two liquidity measurements are calculated on the basis of these trading data – the bid-ask spread and the Amihud measure. These proxies are compared to the proxies of the ETFs themselves and it is found that the ETFs are more liquid compared to the proxies based on the underlying securities. Also, the possibility of whether the underlying securities can predict the liquidity of the ETF is tested. However, for this analysis, it was not possible to find consistency in the results.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2019
Number of pages122
SupervisorsMads Stenbo Nielsen