Corporate Bond ETFs, Bond Liquidity, and ETF Trading Volume

42 Pages Posted: 19 Apr 2019 Last revised: 19 Jun 2023

See all articles by Thomas Marta

Thomas Marta

Wilfrid Laurier University - Lazaridis School of Business and Economics

Date Written: November 1, 2019

Abstract

This research examines the influence of corporate bond Exchange-Traded Funds (ETFs) on the liquidity of their underlying securities. Findings indicate that corporate bond ETFs reduce transaction costs for their constituent bonds, and so even during periods of arbitrage and market stress. Through the utilization of a quasi-natural experiment, the study addresses self-selection and index effect identification issues, establishing a positive causal relation between ETF ownership and bond liquidity. The trading volume of corporate bond ETFs, which is 6.67 times larger than their arbitrage, appears to be beneficial.

Keywords: Exchange-traded funds, Corporate bonds, Liquidity, Trading Volume

JEL Classification: G10, G14

Suggested Citation

Marta, Thomas, Corporate Bond ETFs, Bond Liquidity, and ETF Trading Volume (November 1, 2019). Available at SSRN: https://ssrn.com/abstract=3350519 or http://dx.doi.org/10.2139/ssrn.3350519

Thomas Marta (Contact Author)

Wilfrid Laurier University - Lazaridis School of Business and Economics ( email )

64 University Ave W
Waterloo, Ontario N2L 3C7
Canada

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