Exchange-traded funds and transparency in over-the-counter markets

Viet-Dung Doan

Review of Finance, 2025, vol. 29, issue 4, 1043-1065

Abstract: This article explores a new channel through which exchange-traded funds (ETFs) can affect underlying asset prices. In over-the-counter markets, daily disclosure of ETF portfolio holdings increases price transparency and therefore retail investors’ bargaining power. I show that ETF-held municipal bonds have significantly lower dealer markups than observationally similar non-ETF-held bonds. This effect cannot be explained by bond selection or ETFs’ own trading activity. Rather, ETFs’ disclosure of end-of-day bond pricing is associated with lower retail markups by 5–9 basis points.

Keywords: exchange-traded funds; market transparency; information asymmetry; dealer markups; municipal bonds; over-the-counter markets (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 (search for similar items in EconPapers)
Date: 2025
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