Fund Flows and Underlying Returns: The Case of ETFs

Staer, Arsenio

doi:10.2139/ssrn.2158468

Cited by 25 publications

(19 citation statements)

References 72 publications

(101 reference statements)

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“…() assert that ETF flows are generally driven by investor demand. Staer () associates ETF flows with the returns on their indexes. Ben‐David et al .…”

Section: Related Literature Motivation and Intuitionmentioning

confidence: 99%

Do exchange‐traded fund flows increase the volatility of the underlying index? Evidence from the emerging market in China

Wang

2019

Accounting & Finance

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Studying 70 Chinese equity exchange-traded funds (ETFs), we show that daily ETF flows significantly increase both the total volatility and the fundamental volatility of the underlying index on the next trading day. More specifically, it is the forward-looking flow component which captures APs' share creation/ redemption activities beyond their role of market makers that can significantly predict the two types of volatility. Moreover, ETF arbitrage (ETF's information share) enhances the effect of forward-looking flows on the total volatility (fundamental volatility) of the index. Furthermore, the relationships between forward-looking flows and the two types of index volatility show a two-way contagion.

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“…() assert that ETF flows are generally driven by investor demand. Staer () associates ETF flows with the returns on their indexes. Ben‐David et al .…”

Section: Related Literature Motivation and Intuitionmentioning

confidence: 99%

Do exchange‐traded fund flows increase the volatility of the underlying index? Evidence from the emerging market in China

Wang

2019

Accounting & Finance

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“…Other researchers argue that price reversals at the underlying securities level could be evidence that ETF flows putting temporary price pressure on the underlying stocks which ultimately revert. Staer (2014) finds that ETF flows are contemporaneous with index returns and that these price effects partly revert after a few days. Baltussen, Da, and van Bekkum (2016) find that the serial correlation of stock markets became more negative following indexation.…”

Section: Propagation Of Demand Shocks To Underlying Securitiesmentioning

confidence: 93%

Exchange Traded Funds (ETFs)

2016

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Over nearly a quarter of a century, ETFs have become one of the most popular passive investment vehicles among retail and professional investors due to their low transaction costs and high liquidity. By the end of 2016, the market share of ETFs topped over 10% of the total market capitalization traded on US exchanges, while representing more than 30% of the overall trading volume. ETFs revolutionized the asset management industry by taking market share from traditional investment vehicles such as mutual funds and index futures. Because ETFs rely on arbitrage activity to synchronize their prices with the prices of the underlying portfolio, trading activity at the ETF level translates to trading of the underlying securities. Researchers found that while ETFs enhance price discovery, they also inject non-fundamental volatility to market prices and affect the correlation structure of returns. Furthermore, ETFs impact the liquidity of the underlying portfolios, especially during events of market stress.

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“…Several studies have examined how ETFs affect the trading environments of their constituent securities. Staer () shows that ETF fund flows have a large impact on underlying stock returns, whereas Broman () reports that unexpected shocks to ETF trading activity or ETF price impact are correlated across funds with similar holdings. Ben‐David et al.…”

Section: Market Qualitymentioning

confidence: 99%

ETF Competition and Market Quality

Box¹,

Davis²,

Fuller

2018

Financial Management

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This paper examines competition between exchange traded funds (ETFs) that hold nearly identical portfolios of securities. We provide evidence that incumbent‐fund liquidity is negatively affected when a new ETF is added to an asset class. The degradation in liquidity is even more severe whenever both funds follow the same benchmark. We also document a decline in primary‐market activity for the incumbent ETFs after the arrival of new competitors. Furthermore, increasing the number of funds in an asset class does not put downward pressure on fund management fees. Thus, the deterioration in market quality may not be offset by decreasing costs of fund ownership.

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Fund Flows and Underlying Returns: The Case of ETFs

Cited by 25 publications

References 72 publications

Do exchange‐traded fund flows increase the volatility of the underlying index? Evidence from the emerging market in China

Do exchange‐traded fund flows increase the volatility of the underlying index? Evidence from the emerging market in China

Exchange Traded Funds (ETFs)

ETF Competition and Market Quality

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