Journal of Financial Economics Vol. 125 No. 3 2017
The impact of innovation: Evidence from corporate bond exchange-traded funds (ETFs)
Abstract
Using distinct features of corporate bond exchange-traded funds (ETFs), I find that financial innovation has a significant and long-term positive valuation impact on the systemically important underlying securities. A one standard deviation increase in ETF ownership reduces high-yield and investment-grade bond spreads by 20.3 and 9.2 basis points, respectively, implying an average monthly price increase of 1.03% and 0.75%. Two novel quasi-natural experiments exploit exogenous changes in ETF eligibility to confirm the effect. Examining theoretical explanations for the effect, I find that ETFs decrease liquidity trader participation, increase institutional ownership, and insignificantly or negatively impact the liquidity of individual bonds.
- DOI
- 10.1016/j.jfineco.2017.06.002
- Volume
- 125
- Issue
- 3
- Pages
- 537-560
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib