Exchange-Traded Funds (ETFs) and Stock Liquidity: Vietnamese Evidence

Abstract

   The paper examines how the introduction of Vietnamese exchange-traded funds (ETFs) impacts on the liquidity of the underlying stocks. We found that the component stock's liquidity decreased after Deutsche Bank Xtrackers (DBX) - the first Vietnamese-based ETF - was introduced in 2008, but significantly improved after the introduction of the other two ETFs, the VanEck Vectors Vietnam ETF (VNM) in 2009 and the E1VFVN30 in 2014. In addition, the stock liquidity change is more pronounced for the stocks that had lower weight in the ETFs. The empirical findings may result in policy implications about the effects of ETF creation on the Vietnam stock market under different trends of the stock market. ETF creation not only provides a new and alternative investment, but is also a diversified and transparent investment tool for Vietnamese investors.