Exchange-Traded Funds and Transparency in OTC Markets

77 Pages Posted: 23 Nov 2020 Last revised: 3 Nov 2022

See all articles by Viet-Dung Doan

Viet-Dung Doan

Purdue University - Krannert School of Management

Date Written: April 10, 2020


This paper explores a new channel through which exchange-traded funds (ETFs) can affect underlying asset prices. In over-the-counter markets, daily disclosure of ETF portfolio holdings increases pre-trade price transparency and thereby retail investors' bargaining power. I show that ETF-held municipal bonds have significantly smaller price dispersion than observationally similar non-ETF-held bonds. This effect cannot be explained by selection or ETFs' own trading activity. Conversely, ETF disclosure quality is associated with smaller bond price dispersion by up to 27 basis points. In the primary market, when municipalities have outstanding ETF-held bonds, their new issues have lower yields and smaller price dispersion.

Keywords: exchange-traded funds, market transparency, municipal bonds, price dispersion, OTC markets

JEL Classification: G12, G14, G23

Suggested Citation

Doan, Viet-Dung, Exchange-Traded Funds and Transparency in OTC Markets (April 10, 2020). Available at SSRN: or

Viet-Dung Doan (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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