Financial Innovation in the Uranium Mining Sector : Analysis of an Exchange-Traded Fund and its Impact on Trading Characteristics of Uranium Stocks

We examine a recent innovation in the highly volatile and illiquid uranium market, The Global X Uranium Exchange-Traded Fund (URA), and its impact on the trading characteristics of constituent and non-constituent stocks. Over a three-month period, following the introduction of URA, we find uranium stocks display decreased bid-ask spread measures, driven by reductions in information asymmetry. Relative effective spreads decrease by 36% after the introduction of URA, and adverse selection costs dec­­line by 24% over the same period. Uranium stocks experience a significant positive abnormal return of 5.0% the day after the introduction of URA with subsequent price reversals. Our findings suggest that the introduction of URA prompted uninformed traders to rebalance portfolios and migrate to the less information sensitive Exchange-Traded Fund, causing temporary deviations in trading characteristics. These results illustrate that the introduction of new financial securities to the market can have a significant impact on the trading characteristics of related equities