Passive funds affect prices: evidence from the most ETF-dominated asset classes

Karamfil Todorov

No 952, BIS Working Papers from Bank for International Settlements

Abstract: This paper studies exchange-traded funds’ (ETFs) price impact in the most ETF-dominated asset classes: volatility (VIX) and commodities. I propose a modelindependent approach to replicate the VIX futures contract. This allows me to isolate a non-fundamental component in VIX futures prices that is strongly related to the rebalancing of ETFs. To understand the source of that component, I decompose trading demand from ETFs into three parts: leverage rebalancing, calendar rebalancing, and flow rebalancing. Leverage rebalancing has the largest effects. It amplifies price changes and exposes ETF counterparties negatively to variance.

Keywords: ETF; leverage; commoditization; VIX; futures (search for similar items in EconPapers)
JEL-codes: G11 G13 G23 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2021-07
New Economics Papers: this item is included in nep-fmk, nep-mst and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.bis.org/publ/work952.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work952.htm (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:952

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().