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Passing on the hot potato: the use of ETFs by open-ended funds to manage redemption requests

Author

Listed:
  • Dekker, Lennart
  • Molestina Vivar, Luis
  • Weistroffer, Christian

Abstract

This paper examines the use of ETFs by open-ended investment funds in the euro area to manage liquidity. We find that during the COVID-19 market turmoil, investment funds were the most run-prone investor type in the market for ETFs. We also show that open-ended funds that faced larger outflows in March 2020 scaled down their ETF holdings by a larger amount. These results are consistent with open-ended funds passing on their outflows to the ETF shares they held. Since open-ended investment funds are the largest group of ETF investors in the euro area, their trading can materially impact primary ETF flows during times of stress. JEL Classification: G01, G11, G23

Suggested Citation

  • Dekker, Lennart & Molestina Vivar, Luis & Weistroffer, Christian, 2024. "Passing on the hot potato: the use of ETFs by open-ended funds to manage redemption requests," Working Paper Series 2963, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242963
    Note: 2382229
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    References listed on IDEAS

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    More about this item

    Keywords

    COVID-19 pandemic; cross-fund holdings; exchange-traded funds; liquidity management;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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