Abstract
We document the performance of liquidity proxies in ETFs. Most proxies are developed for use in equities. However, ETFs have lower asymmetric information, more algorithmic trading, and an active primary market where units are frequently created and redeemed. Using a comprehensive database of over 600 ETFs, we find that despite the differences between ETF and stock liquidity, proxies such as Daily Spread, High-Low, Amihud, and Roll all do a good job of capturing changes in effective and quoted spread transaction costs. However, no proxies accurately reflect movements in price impact or the level of actual transaction costs.
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