The Counterparty Risk Exposure of ETF Investors

Christophe Hurlin, Gregoire Iseli, Christophe Perignon () and Stanley Yeung
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Gregoire Iseli: University of Geneva - UNIGE - Université de Genève = University of Geneva
Stanley Yeung: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

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Abstract: As most Exchange-Traded Funds (ETFs) engage in securities lending or are based on total return swaps, they expose their investors to counterparty risk. In this paper, we estimate empirically such risk exposures for a sample of physical and swap-based funds. We find that counterparty risk exposure is higher for swap-based ETFs, but that investors are compensated for bearing this risk. Using a difference-in-differences specification, we uncover that ETF flows respond significantly to changes in counter-party risk. Finally, we show that switching to an optimal collateral portfolio leads to substantial reduction in counterparty risk exposure.

Keywords: optimal collateral portfolio; systemic risk; Asset management; derivatives (search for similar items in EconPapers)
Date: 2014-07-05
New Economics Papers: this item is included in nep-rmg
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01023807v3
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The counterparty risk exposure of ETF investors (2019)
Working Paper: The counterparty risk exposure of ETF investors (2019)
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