Economic Policy Uncertainty and Global ETF Flows
54 Pages Posted: 19 Mar 2020 Last revised: 23 Mar 2020
Date Written: February 22, 2020
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: Suggested Citation