How ETFs amplify the global financial cycle in emerging markets

Nathan Converse, Eduardo Levy Yeyati and Tomas Williams
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Nathan Converse: Federal Reserve Board

No 57, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: Since the early 2000s exchange-traded funds (ETFs) have grown to become an important in- vestment vehicle worldwide. In this paper, we study how their growth affects the sensitivity of international capital flows to the global financial cycle. We combine comprehensive fund- level data on investor flows with a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. For dedicated emerging market funds, we find that the sensitivity of investor flows to global financial conditions for equity (bond) ETFs is 2.5 (2.25) times higher than for equity (bond) mutual funds. In turn, we show that in countries where ETFs hold a larger share of financial assets, total cross-border equity flows and prices are significantly more sensitive to global financial conditions. We conclude that the growing role of ETFs as a channel for international capital flows amplifies the global financial cycle in emerging markets.

Keywords: exchange-traded; funds; mutual; funds; global; financial; cycle; global; risk; push; and; pull; factors; capital; flows; emerging; markets (search for similar items in EconPapers)
JEL-codes: F32 G11 G15 G23 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2021-04
New Economics Papers: this item is included in nep-cwa, nep-fdg, nep-fmk and nep-ifn
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Related works:
Journal Article: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2023)
Working Paper: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2020)
Working Paper: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2019)
Working Paper: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2019)
Working Paper: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2018)
Working Paper: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2018)
Working Paper: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:57

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