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Are there pricing spillovers within ETFs? Evidence from emerging market corporate bonds

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  • Matias Braun
  • Rodrigo A. Wagner

Abstract

Financial theories suggest that the entry of a new security into an exchange-traded fund (ETF) could impact the price of the other constituents of that ETF. We test these various theories using data from Emerging Market corporate bonds between 2012 and 2017. We find that the inclusion of a new bond into the ETF lowers the relative price of constituent bonds that were ex-ante similar to the entrant. Additionally, we find that part of this effect tends to be transitory. These facts also hold with most alternative measures of bond similarity and proxies for returns. Moreover, the effect is stronger for less liquid bonds and when the short-run ability to absorb this entry shock is more limited. Overall, our findings suggest that part of the effect is consistent with price-pressure models.

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  • Matias Braun & Rodrigo A. Wagner, 2022. "Are there pricing spillovers within ETFs? Evidence from emerging market corporate bonds," Applied Economics, Taylor & Francis Journals, vol. 54(31), pages 3567-3581, July.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:31:p:3567-3581
    DOI: 10.1080/00036846.2020.1855313
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    Cited by:

    1. Alomari, Mohammed & Selmi, Refk & Mensi, Walid & Ko, Hee-Un & Kang, Sang Hoon, 2024. "Dynamic spillovers in higher moments and jumps across ETFs and economic and financial uncertainty factors in the context of successive shocks," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 210-228.

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