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.
| Original language | English |
|---|---|
| Pages (from-to) | 3567-3581 |
| Number of pages | 15 |
| Journal | Applied Economics |
| Volume | 54 |
| Issue number | 31 |
| DOIs | |
| State | Published - 2022 |
Bibliographical note
Funding Information:This work was supported by ANID - FONDECYT 11191206. Authors acknowledge useful feedback from seminar participants at UAI Business School and Sociedad de Econom?a de Chile. Wagner acknowledges support from ANID FONDECYT project 11191206. Usual disclaimers apply.
Funding Information:
Authors acknowledge useful feedback from seminar participants at UAI Business School and Sociedad de Economía de Chile. Wagner acknowledges support from ANID FONDECYT project 11191206. Usual disclaimers apply.
Publisher Copyright:
© 2021 Informa UK Limited, trading as Taylor & Francis Group.
Keywords
- corporate bonds
- Exchange-traded funds
- i-Shares
- liquidity
- segmented markets