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Do ETF flows increase market efficiency? Evidence from China

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  • Jilong Chen
  • Liao Xu
  • Yang Zhao

Abstract

Focusing on the equity exchange traded funds (ETFs) in China, we demonstrate the significant effect of ETF flows on the informativeness of the ETF index. Following the novel approach proposed by Xu et al (2019a). to identify different driving forces for ETF flows, we explore whether the forward‐looking ETF flows at a day’s closing substantially improve the index’s efficiency on the next day. The mechanism behind it is inter‐market information spread: the efficiency effect of the forward‐looking ETF flows strengthens when ETFs share more new information; and the forward‐looking ETF flows increase the information flow to the ETF index on the next day.

Suggested Citation

  • Jilong Chen & Liao Xu & Yang Zhao, 2020. "Do ETF flows increase market efficiency? Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4795-4819, December.
    • Handle: RePEc:bla:acctfi:v:60:y:2020:i:5:p:4795-4819
    DOI: 10.1111/acfi.12667
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    2. Valadkhani, Abbas, 2022. "Do large-cap exchange-traded funds perform better than their small-cap counterparts in extreme market conditions?☆," Global Finance Journal, Elsevier, vol. 53(C).

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