Fixed Income ETFs, Bond Liquidity, and Stressed Markets

95 Pages Posted: 19 Apr 2019 Last revised: 14 Mar 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. By exploiting two distinct quasi-natural experiments of exogenous changes in ETF eligibility, I find that corporate bonds joining (exiting) ETFs experience a decrease (increase) of their transaction costs compared to similar bonds whose ETF ownership remains stable. Moreover, ETFs do not appear to deteriorate the liquidity of their bonds during market stress and ETF arbitrage events. My findings support the theoretical prediction that ETFs complete the market.

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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