Exchange-Traded Funds and Transparency in Over-the-Counter Markets

65 Pages Posted: 23 Nov 2020 Last revised: 3 Apr 2024

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 lower dealer markups than observationally similar non-ETF-held bonds. This effect cannot be explained by selection or ETFs' own trading activity. Rather, ETF disclosure quality is associated with lower retail markups by up to 24 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 Over-the-Counter Markets (April 10, 2020). Available at SSRN: or

Viet-Dung Doan (Contact Author)

Hong Kong Baptist University ( email )

Renfrew Road 34
Kowloon Tong
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics