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ETFs and information transfer across firms

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  • Bhojraj, Sanjeev
  • Mohanram, Partha
  • Zhang, Suning

Abstract

This paper examines the role that exchange-traded funds (ETFs) play in the transfer of information across firms around earnings announcements. Our analysis focuses on the differences in information transfer between broad-based and sector ETFs. We find that firms with sector ETF ownership are associated with reduced over-extrapolation of intra-industry information, increased earnings response coefficients (ERCs), greater responsiveness to the industry and idiosyncratic components of earnings surprise, and reduced post-earnings announcement drift. Conversely, broad-based ETFs are associated with decreased ERCs and lower responsiveness to industry and idiosyncratic information. Follower firms in sector ETFs show stronger reactions and weaker reversals when leader firms in the same ETFs release earnings, while follower firms in broad-based ETFs show weaker reactions and greater reversals. Overall, sector ETFs have improved informational efficiency by facilitating information transfer, while broad ETFs might have worsened informational efficiency in the context of earnings announcements.

Suggested Citation

  • Bhojraj, Sanjeev & Mohanram, Partha & Zhang, Suning, 2020. "ETFs and information transfer across firms," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    • Handle: RePEc:eee:jaecon:v:70:y:2020:i:2:s0165410120300380
    DOI: 10.1016/j.jacceco.2020.101336
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    Cited by:

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    2. Timár, Barnabás, 2023. "A klímavédelmi események hatása a köztudatra és a tőkepiacra. Empirikus vizsgálat Google-trends- és ETF-adatokon [The impact of climate events on public perception and capital markets. An empirical," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 713-745.
    3. Mariia Kosar & Sergei Mikhalishchev, 2022. "Inattentive Price Discovery in ETFs," CERGE-EI Working Papers wp735, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    4. Yuan, Ying & Huang, Yizhao & Chen, Haoran, 2021. "Monthly-rebalanced leveraged exchange-traded products: Performance and mandatory rebalancing needs," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    5. Christensen, Dane M. & Jin, Hengda & Lee, Joshua A. & Sridharan, Suhas A. & Wellman, Laura A., 2023. "Corporate political activism and information transfers," Working Papers 334, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.

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    More about this item

    Keywords

    ETF; Information transfer; Post earnings announcement drift; Sector ETF;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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