Does Economic Policy Uncertainty Drive Global ETF Flows?

59 Pages Posted: 19 Mar 2020 Last revised: 31 May 2022

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 (AMSS)

Ke Shi

Central University of Finance and Economics

Qianrun Lin

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

Date Written: May 30, 2022

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 2018. 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 mechanism through which fund exposure of EPU reduces fund 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 highlights the significant role of EPU in driving ETF flows in the global context.

Keywords: economic policy uncertainty; investor sentiment; flow decomposition

JEL Classification: F21, F23, F32

Suggested Citation

Wu, Kai and Sun, Yuying and Shi, Ke and Lin, Qianrun, Does Economic Policy Uncertainty Drive Global ETF Flows? (May 30, 2022). 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 (AMSS) ( email )

Beijing
China

Ke Shi

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States
+86 18813022378 (Phone)

Qianrun Lin

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

China

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