The effects Ishares IBovespa index fund creation on the liquidity of underlying stocks

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

I investigate the impact of Ishares Ibovespa Index Fund (BOVA) introduction on the liquidity of the underlying securities and the asymmetry of the liquidity effect depending on the BOVA component weight. My main finding is that there was no impact on liquidity of underlying components after the introduction of the exchange-traded fund and also that the absence of effect in liquid is symmetric for all the component securities. Additional, I find that BOVA has a low trading volume and liquidity over the 50 days of trading as compared with other ETF’s at the moment of inception. Being this the main reason for the absence of impact on the liquidity of components securities after BOVA inception.