Economic Policy Uncertainty and Global ETF Flows

56 Pages Posted: 19 Mar 2020 Last revised: 9 Dec 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: December 9, 2020

Abstract

We investigate the association between fund exposure of economic policy uncertainty (EPU) and flows of exchange-traded funds (ETFs) using a unique sample of U.S. global ETFs from 2012 to 2017. We find that fund exposure of EPU is negatively associated with flows after controlling for returns, macroeconomic conditions, and other fund characteristics. Such a negative relationship is pronounced in funds with the high flow-performance sensitivity and economic relatedness. Investor sentiment is identified as the possible mechanisms through which fund exposure of EPU reduces ETF flows, as shown by the put-to-call option volume and short interest. Flow decomposition collaborates with the finding that only sentiment-driven flows respond to the EPU. Our study is the first to highlight the significant role of EPU in driving ETF flows in the global context.

Keywords: economic relatedness, investor sentiment, sentiment-driven flows, fundamental-driven flows

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 (December 9, 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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