Document Type

Article

Publication Date

2024

Department

Finance

Department

Finance

Abstract

This study investigates the impact of corporate bond ETFs on the liquidity of their underlying securities. By alternatively utilizing panel regressions in levels, in changes, controlling for past liquidity, subsample tests—including periods of market stress and arbitrage—and a novel quasi-natural experiment, this study addresses self-selection and index effect identification issues. The findings indicate that ETFs significantly reduce transaction costs and enhance bond liquidity. Notably, the trading volume of ETFs, which is 6.67 times greater than their arbitrage, appears beneficial.

Comments

The latest version of this pre-print is available here: https://dx.doi.org/10.2139/ssrn.3350519

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