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Do ETFs increase the comovements of their underlying assets? Evidence from a switch in ETF replication technique

Marta, Thomas; Riva, Fabrice (2022), Do ETFs increase the comovements of their underlying assets? Evidence from a switch in ETF replication technique, FMA 2022 Annual Meeting, 2022-10, Atlanta, Etats-Unis d'Amérique

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Type
Communication / Conférence
Date
2022
Titre du colloque
FMA 2022 Annual Meeting
Date du colloque
2022-10
Ville du colloque
Atlanta
Pays du colloque
Etats-Unis d'Amérique
Métadonnées
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Auteur(s)
Marta, Thomas
Riva, Fabrice
Dauphine Recherches en Management [DRM]
Résumé (EN)
We investigate the impact of Exchange-Traded Funds (ETFs) on the comovements of their constituent securities using a novel identification that exploits the switch from synthetic to physical replication of a large French ETF. After the switch, constituent stocks experience greater commonality, in both returns and liquidity. For both the full sample of ETF constituents and the least liquid ETF constituents, a larger part of the variation in individual stock returns or liquidity is explained by market-wide variations. We present evidence that ETF arbitrage is the transmission mechanism of the comovements. Moreover, we show that the comovements do not appear excessive.
Mots-clés
ETFs; Commonality
JEL
G10 - General
G20 - General