Can we substitute trading an illiquid ETF with its core underlyings?Study
Sold 1(16 ) in sector ETFs Energy (XLE), Finance (XLF), and Technology (XLK), as well as their top 5 holdings
Compared average performance of top 5 holdings to sector ETF to check for substitutability
2010 to present; 45 DTE options
We find that the performance between the ETF's and their top five holdings is very similar, therefore we can substitute using the illiquid XLC with 5 of its top holdings: GOOG, DIS, FB, VZ, CMCSA.