Exchange-Traded Funds and Real Investment

Constantinos, Frank Weikai, Xuewen Liu, Avanidhar Subrahmanyam and Chengzhu Sun

The Review of Financial Studies, 2023, vol. 36, issue 3, 1043-1093

Abstract: We investigate the link between exchange-traded funds and real investment. Cross-sectionally, higher ETF ownership is associated with an increased sensitivity of real investment to Tobin’s q and a heightened ability of stock returns to forecast future earnings. Inclusion of stocks in industry ETFs enhances investment- sensitivity and implies greater incorporation of earnings information into prices prior to public releases. Greater nonmarket ETF ownership leads to increased (reduced) reliance of real investment on own (peers’) stock prices. Overall, the evidence is consistent with ETFs positively affecting real investment efficiency via greater flows of information.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

JEL-codes: G14 G23 G31 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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