Passing on the hot potato: the use of ETFs by open-ended funds to manage redemption requests

Lennart Dekker, Luis Molestina Vivar and Christian Weistroffer

No 2963, Working Paper Series from European Central Bank

Abstract: This paper examines the use of ETFs by open-ended investment funds in the euro area to manage liquidity. We find that during the COVID-19 market turmoil, investment funds were the most run-prone investor type in the market for ETFs. We also show that open-ended funds that faced larger outflows in March 2020 scaled down their ETF holdings by a larger amount. These results are consistent with open-ended funds passing on their outflows to the ETF shares they held. Since open-ended investment funds are the largest group of ETF investors in the euro area, their trading can materially impact primary ETF flows during times of stress. JEL Classification: G01, G11, G23

Keywords: COVID-19 pandemic; cross-fund holdings; exchange-traded funds; liquidity management (search for similar items in EconPapers)
Date: 2024-07
Note: 2382229
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242963

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