Title: Do ETFs increase the comovements of their underlying assets? Evidence from a switch in ETF replication technique
Authors: Thomas Marta - Universite Paris Dauphine (France) [presenting]
Fabrice Riva - Universite Paris-Dauphine (France)
Abstract: The impact of Exchange-Traded Funds (ETFs) on their constituent securities is investigated. The analysis is performed using a novel identification which exploits the switch from synthetic to physical replication of a large French ETF. We find that constituent stocks experience greater commonality, both in returns and in liquidity, after the switch. The effect on return commonality appears stronger for the least liquid stocks included in the ETF. Moreover, we present evidence that ETF arbitrage is the transmission mechanism of the comovements.