An ETF-based measure of stock price fragility

Hamilton Galindo Gil and Renato Lazo-Paz
Authors registered in the RePEc Author Service: Renato Lazo Paz

Journal of Financial Markets, 2025, vol. 72, issue C

Abstract: Equity mutual fund flows are commonly employed to measure stock price fragility - a stock’s exposure to non-fundamental demand risk. However, this approach may be biased by confounding fundamental information, potentially underestimating risk exposure. We propose an alternative method that uses the primary market data of exchange-traded funds (ETFs). This approach overcomes many limitations of mutual fund data, incorporates the influence of a broader set of investor demand, and strongly predicts stock return volatility and return comovement. Our study highlights the significant role that the arbitrage trading activity of ETFs play in signaling non-fundamental demand shocks.

Keywords: Non-fundamental demand risk; Fragility; Mutual funds; ETFs; Volatility (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:72:y:2025:i:c:s1386418124000648

DOI: 10.1016/j.finmar.2024.100946

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