How ETFs Amplify the Global Financial Cycle in Emerging Markets

Tomas Williams, Nathan Converse and Eduardo Levy-Yeyati
Additional contact information
Nathan Converse: Federal Reserve Board
Eduardo Levy-Yeyati: Universidad Torcuato di Tella
Authors registered in the RePEc Author Service: Eduardo Levy Yeyati

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: Since the early 2000s exchange-traded funds (ETFs) have grown to become an important investment 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 fundlevel 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 risk factors for equity (bond) ETFs is 1.5 (1.25) 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 risk factors. We conclude that the growing role of ETFs as a channel for international capital flows amplifies the incidence of 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: 61 pages
Date: 2018-01, Revised 2018-09
New Economics Papers: this item is included in nep-fmk and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://www2.gwu.edu/~iiep/assets/docs/papers/2018WP/WilliamsIIEP2018-1.pdf (application/pdf)

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 (2021)
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 (2017)
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