Fund Flows and Underlying Returns: The Case of ETFs

30 Pages Posted: 8 Oct 2012 Last revised: 25 Oct 2017

See all articles by Arsenio Staer

Arsenio Staer

California State University, Fullerton, Mihaylo College of Business & Economics, Department of Finance

Date Written: March 9, 2017

Abstract

I investigate the relation between exchange-traded fund (ETF) flows and their underlying securities' returns using a unique fund-level database covering U.S. equity ETFs, adjusted for the flow reporting bias. I document price pressure and price reversal patterns in ETF flow-return relation in panel and aggregate settings, suggesting an economically significant price pressure effect, even when controlling for mutual fund flows which do not exhibit price pressure. At an aggregate level, vector autoregressive (VAR) tests show that 38% of the price change associated with the flow shock corresponds to price pressure and is reversed after five days. These results extend the research concerning the price impact of institutional trades to the novel ETF framework and highlight differences in the market roles of mutual funds and ETFs.

Keywords: ETF, arbitrage, fund, flows, trading volume, VAR, asset basket

JEL Classification: G12, G14, G23

Suggested Citation

Staer, Arsenio, Fund Flows and Underlying Returns: The Case of ETFs (March 9, 2017). International Journal of Business, Vol. 22, No. 4, 2017. Available at SSRN: https://ssrn.com/abstract=2158468 or http://dx.doi.org/10.2139/ssrn.2158468

Arsenio Staer (Contact Author)

California State University, Fullerton, Mihaylo College of Business & Economics, Department of Finance ( email )

PO Box 34080
Fullerton, CA 92834-9480
United States

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