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

Lennart Dekker, Luis Molestina Vivar, Christian Weistroffer

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.

MoreLess

Year of publication:	[2024]
Authors:	Dekker, Lennart ; Molestina Vivar, Luis ; Weistroffer, Christian
Publisher:	Frankfurt am Main, Germany : European Central Bank
Subject:	Exchange-traded funds \| cross-fund holdings \| liquidity management \| COVID-19 pandemic \| Coronavirus \| Investmentfonds \| Investment Fund \| Indexderivat \| Index derivative \| Portfolio-Management \| Portfolio selection \| Epidemie \| Epidemic