Recent literature suggests that trading by institutional investors may affect the first and second moments of returns. Elaborating on this intuition, we conjecture that arbitrageurs can propagate liquidity shocks between related markets. The paper provides evidence in this direction by studying...

I develop a dynamic general equilibrium model of exchange traded funds (ETFs) that accounts for the two-tier ETF market structure with both a centralized exchange (secondary market) and a creation/redemption mechanism (primary market) operating through market-making firms known as Authorized...

The paper studies the effect of growing mutual fund and ETF ownership on the commonality in liquidity of underlying bonds. Unpredictable liquidity needs of funds may give rise to correlated trading across underlying illiquid bonds. I document that there is a positive and significant relationship...

The interplay between investors' demand and providers' incentives has shaped the evolution of exchange-traded funds (ETFs). While early ETFs offered diversification at low cost, later ETFs track niche portfolios and charge high fees. Strikingly, over their first five years, specialized ETFs lose...

Passively managed index funds now hold over 30% of U.S. equity fund assets; this shift raises fundamental questions about monitoring and governance. We show that, relative to active funds, index funds are less effective monitors: (a) they are less likely to vote against firm management on...

Since the introduction of its Quantitative and Qualitative Easing program in 2013, the Bank of Japan has been increasing its holdings of Japanese equity through large scale purchases of index-linked ETFs with the intention of lowering assets' risk premia. We exploit the cross-sectional...

Over two decades, ETFs have become one of the most popular investment vehicle among retail and professional investors due to their low transaction costs and high liquidity, taking market share from traditional investment vehicles such as mutual funds and index futures. Research has shown that in...

In this study, we examine the rationale that informed traders use in choosing various financial instruments in order to speculate on the volatility of the underlying asset, here a common stock. Using a continuous-time trading model, we demonstrate that the quality of the private information...

In this paper, we consider block trading strategies and characterize the times when a block trade is a popular choice. We also study the economic relevance of optimal liquidation strategies by calibrating a recent and realistic microstructure model with data from the Paris Stock Exchange. We...