Braun, M., & Wagner, R. A. (2019). Are there Pricing Spillovers within ETFs? Evidence from Emerging Market Corporate Bonds. Evidence from Emerging Market Corporate Bonds.

Braun, M., & Wagner, R. A. (2019). Are there pricing spillovers within an ETF? Evidence from Emerging Market Corporate Bonds. Evidence from Emerging Market Corporate Bonds (November 18, 2019).

Abstract

Financial theories implicitly predict that the entry of a new security into an exchange-traded fund (ETF) could impact the price of the other constituents of that ETF. We test these theories using data from Emerging Market corporate bonds between 2012 and 2017. We find that the inclusion of a new bond into the ETF lowers the relative price of constituent bonds that were ex-ante similar to the entrant. Additionally, we find that part of this effect tends to be transitory. These facts also hold with most alternative measures of bond similarity and proxies for returns. Additionally, the effect is stronger for less liquid bonds and when the short-run ability to absorb this entry shock is more limited. In sum, part of the fall in prices might be consistent with price-pressure models.