The counterparty risk exposure of ETF investors

Christophe Hurlin, Grégoire Iseli, Christophe Perignon () and Stanley Yeung

Journal of Banking & Finance, 2019, vol. 102, issue C, 215-230

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 counterparty risk. Finally, we show that switching to an optimal collateral portfolio leads to substantial reduction in counterparty risk exposure.

Keywords: Asset management; Collateral; Derivatives; Regulatory arbitrage; Systemic risk (search for similar items in EconPapers)
JEL-codes: G20 G23 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: The counterparty risk exposure of ETF investors (2019)
Working Paper: The Counterparty Risk Exposure of ETF Investors (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:102:y:2019:i:c:p:215-230

DOI: 10.1016/j.jbankfin.2019.03.014

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