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How ETFs Amplify the Global Financial Cycle in Emerging Markets

Nathan Converse, Eduardo Levy Yeyati and Tomas Williams
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Nathan Converse: https://www.federalreserve.gov/econres/nathan-l-converse.htm

No 1268, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper examines how the growth of exchange-traded funds (ETFs) has affected the sensitivity of international capital flows to global financial conditions. Using data on individual emerging market funds worldwide, we employ a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. We find that the sensitivity of flows to global financial conditions for equity (bond) ETFs is 2.5 (2.25) times higher than for equity (bond) mutual funds. We then show that our findings have macroeconomic implications. In countries where ETFs hold a larger share of the equity market, total cross-border equity flows and returns are significantly more sensitive to global financial conditions. Our results imply that the increasing role of ETFs as a channel for international capital flows has amplified the global financial cycle in emerging markets.

Keywords: exchange-traded funds; Mutual funds; Global financial cycle; global risks; Push and pull factors; Capital flows; Emerging markets (search for similar items in EconPapers)
JEL-codes: F32 G11 G15 G23 (search for similar items in EconPapers)
Pages: 61
Date: 2020-01-17
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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https://www.federalreserve.gov/econres/ifdp/files/ifdp1268.pdf (application/pdf)

Related works:
Working Paper: How ETFs amplify the global financial cycle in emerging markets (2021) Downloads
Working Paper: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2019) Downloads
Working Paper: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2018) Downloads
Working Paper: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2018) Downloads
Working Paper: How ETFs Amplify the Global Financial Cycle in Emerging Markets (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1268

DOI: 10.17016/IFDP.2020.1268

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