Asset Fire Sales by Corporate Bond ETFs in the COVID-19 Crisis

42 Pages Posted: 12 Sep 2022

See all articles by Nan Qin

Nan Qin

College of Business, Northern Illinois University

Ying Wang

State University of New York at Albany - School of Business

Date Written: March 31, 2022

Abstract

We investigate the short-term price impact of asset fire sales by corporate bond exchange-traded funds (ETFs) during the COVID-19 crisis, based on daily ETF holdings and flows data. We document that ETFs’ fire sales generate significantly greater price impact on their underlying corporate bonds in the crisis period compared to non-crisis periods. Moreover, this effect concentrates on investment-grade (IG) bonds rather than high-yield (HY) bonds and disappears after the Federal Reserve’s intervention in the corporate bond market. Further analysis provides a potential explanation for the contrasting differences between IG and HY bonds: IG (HY) ETF flows tend to shift towards positive (negative) feedback trading in the crisis. In general, the evidence suggests that ETFs are a potential source of corporate bond fragility in the COVID-19 crisis.

Keywords: Corporate bond ETFs, asset fire sales, price impact, COVID-19 crisis, ETF flows, corporate bond fragility, Federal Reserve’s intervention

JEL Classification: G14

Suggested Citation

Qin, Nan and Wang, Ying, Asset Fire Sales by Corporate Bond ETFs in the COVID-19 Crisis (March 31, 2022). Available at SSRN: https://ssrn.com/abstract=4208477 or http://dx.doi.org/10.2139/ssrn.4208477

Nan Qin (Contact Author)

College of Business, Northern Illinois University ( email )

740 Garden Road
236G
DEKALB, IL 60115
United States

Ying Wang

State University of New York at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States

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

Paper statistics

Downloads
197
Abstract Views
912
Rank
289,315
PlumX Metrics