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Exchange-Traded Funds and Real Investment

Author

Listed:
  • Constantinos
  • Frank Weikai
  • Xuewen Liu
  • Avanidhar Subrahmanyam
  • Chengzhu Sun
  • Itay Goldstein

Abstract

We investigate the link between exchange-traded funds and real investment. Cross-sectionally, higher ETF ownership is associated with an increased sensitivity of real investment to Tobin’s q and a heightened ability of stock returns to forecast future earnings. Inclusion of stocks in industry ETFs enhances investment- sensitivity and implies greater incorporation of earnings information into prices prior to public releases. Greater nonmarket ETF ownership leads to increased (reduced) reliance of real investment on own (peers’) stock prices. Overall, the evidence is consistent with ETFs positively affecting real investment efficiency via greater flows of information.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Suggested Citation

  • Constantinos & Frank Weikai & Xuewen Liu & Avanidhar Subrahmanyam & Chengzhu Sun & Itay Goldstein, 2023. "Exchange-Traded Funds and Real Investment," The Review of Financial Studies, Society for Financial Studies, vol. 36(3), pages 1043-1093.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:3:p:1043-1093.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac043
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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