Advances in Management and Applied Economics

Investor Sentiment and ETF Liquidity - Evidence from Asia Markets

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• Abstract

  This study aims to analyze the effect of investor sentiment on Exchange Traded Fund (ETF) liquidity, and to capture the variations in investor sentiment, mainly focusing on Asian ETF market data. We employ the Volatility Index and GARCH model to capture the volatility-clustering effect in the study. The empirical result shows that ETF has liquidity, and the degree of investor sentiment plays an important role in ETF liquidity within Asian countries. It indicates a volatility-clustering effect, dealing with the difference of trading systems, regulations in the market, and finds that the relationship between VIX and ETF liquidity is significantly different. Considering hedging against market risk and portfolio investment, this paper suggests that investors should take investor sentiment into their investment decisions, and re-adjust the investment weight of ETF product.