This paper examines the role exchange-traded funds (ETFs) play in providing information to underlying corporate bond markets. We document liquidity improvements for individual corporate bonds regardless of market direction. That increased liquidity, however, comes at the cost of greater market...

A natural liquidity mismatch emerges when liquid exchange traded funds (ETFs) hold relatively illiquid assets. We provide a theory and empirical evidence showing that this liquidity mismatch can reduce market efficiency and increase the fragility of these ETFs. We focus on corporate bond ETFs...

Using distinct features of corporate bond ETFs, financial innovation is found to have a significant and long‐term positive valuation impact on the systemically important underlying. A one standard deviation increase in ETF ownership reduces high yield and investment grade bond spreads by 20.3...

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...

Various financial theories predict 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 theories using data from Emerging Market Corporate Bonds between 2012 and 2017. We find that the entry of a new bond...

Relative to mutual funds, the innovative features of ETFs attract high liquidity demand investors who engage in positive feedback strategies and transmit selling pressure to the underlying via near proportional trading. In a turmoil period we find evidence that ETFs destabilize the systemically...

I document a hidden but substantial cost associated with the liquidity transformation that corporate bond exchange-traded funds (ETFs) provide. When creating new shares, authorized participants (APs) deliver a subset of the portfolio of bonds that underlie a corporate bond ETF. This subset...

If a bidder launches a takeover offer for a listed company being part of a stock market index, then index funds and exchange traded funds (ETF) as shareholders of this company cannot easily tender their shares without losing track of the index. This paper analyzes the impact of index fund and...

This paper investigates the impact of ETF ownership on seasoned equity offerings (SEOs). We find that increases to firms’ ETF ownership is positively related to their propensity to conduct an SEO. ETF ownership is also associated with less negative SEO announcement returns, smaller discounts,...