Doctor of Philosophy (PhD)


Finance (Business Administration)

Document Type



This dissertation comprises of two essays. The first essay, ‘Index Price Discovery in the Cash Market’, employs Hasbrouck’s (2003) information share method to analyze the flow of information in equity markets. In particular I compare trading in Index ETFs with that of their underlying securities. Surprisingly, ETFs seem to play a significant role in the price discovery process, rather than serving as passive indexing/hedging vehicles. Using TAQ data I reconstruct the second-by-second intraday price series for the S&P 500 using its component stocks. Results show that the ETF contributes almost half of the price formation of S&P 500 in the spot market. Next, comparing trades and quotes, We determine the relative amount of informed trading (versus noise) in the ETF. When the trading of ETFs is driven more by private information, the ETF contributes more to the price discovery in the S&P 500 spot market. Thus, the evidence suggests that a portion of ETF trading is information motivated, similar to individual stocks in the index. The second essay, ‘Institutional Flow and Information’, studies the dynamics of institutions’ trading behavior and the information of the market using a high-frequency dataset. The daily institutional flows are estimated in a linear model which differentiates trades by their size. I find in a structural Vector Autoregression (VAR) system that the amount of trading that is private-information based has a negative contemporaneous relationship with the daily changes of institutional ownership in five of the six stocks studied. The findings prove that the trading pattern of institutional investors is related to the degree of information asymmetry in the market. In addition, there is an observable difference of institutions trading ETF or S&P 500 component stocks.



Document Availability at the Time of Submission

Release the entire work immediately for access worldwide.

Committee Chair

Sanger, Gary C.