Economic Policy Uncertainty and Global ETF Flows

54 Pages Posted: 19 Mar 2020 Last revised: 23 Mar 2020

See all articles by Kai Wu

Kai Wu

Central University of Finance and Economics (CUFE) - School of Finance

Yuying Sun

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science

Seiwai Lai

Central University of Finance and Economics (CUFE) - School of Finance

Yindi Shen

Central University of Finance and Economics (CUFE) - School of Finance

Date Written: February 22, 2020

Abstract

This paper investigates whether and how fund exposure of economic policy uncertainty affects the flows of the exchange-traded funds (ETFs). Using a proprietary database covering U.S. listed global ETFs from 2012 to 2017, we find that the fund exposure of economic policy uncertainty negatively affects ETF flows, and the negative effect mainly comes from sentiment-driven flows. In addition, investors' opinion divergence is the underlying channel when pessimistic investors withdraw capitals from funds. Furthermore, the effect is more pronounced in funds with higher flow-performance sensitivity, correlation with macroeconomic indicators, and return synchronicity, and is magnified during the high U.S. policy uncertainty period. Our findings highlight the significant role of economic policy uncertainty in affecting ETF flows in a global context.

Keywords: economic policy uncertainty; ETF; fund flows; sentiment

JEL Classification: F21, F23, F32

Suggested Citation

Wu, Kai and Sun, Yuying and Lai, Seiwai and Shen, Yindi, Economic Policy Uncertainty and Global ETF Flows (February 22, 2020). Available at SSRN: https://ssrn.com/abstract=3542908 or http://dx.doi.org/10.2139/ssrn.3542908

Kai Wu (Contact Author)

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

Yuying Sun

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science ( email )

Beijing
China

Seiwai Lai

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

Yindi Shen

Central University of Finance and Economics (CUFE) - School of Finance

Beijing
China

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