Fixed Income ETFs, Bond Liquidity, and Stressed Markets

83 Pages Posted: 19 Apr 2019 Last revised: 29 Sep 2020

See all articles by Thomas Marta

Thomas Marta

Université Paris-Dauphine, PSL Research University

Date Written: November 1, 2019

Abstract

This paper examines the impact of Fixed Income Exchange-Traded Funds (ETFs) on corporate bond liquidity. I find that corporate bonds ETFs decrease the transaction costs of their constituent securities. The use of two distinct quasi-natural experiments, that control for the identification issues of self-selection and of an index effect, establishes a causal relation between ETF ownership and bond liquidity. Moreover, ETFs do not appear to deteriorate the liquidity of their bonds during ETF arbitrage and market stress events. My findings support the theoretical prediction that ETFs increase information efficiency.

Keywords: Exchange-traded funds, Corporate bonds, Liquidity

JEL Classification: G12, G14, G15

Suggested Citation

Marta, Thomas, Fixed Income ETFs, Bond Liquidity, and Stressed Markets (November 1, 2019). Available at SSRN: https://ssrn.com/abstract=3350519 or http://dx.doi.org/10.2139/ssrn.3350519

Thomas Marta (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75016
France

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