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Authorised participants as shock absorbers in fixed-income ETFs

Author

Listed:
  • Aquilina, Matteo
  • Croxson, Karen
  • Valentini, Gian Giacomo
  • Sun, Zhuowei

Abstract

This paper uses unique regulatory propriety data to analyse ETF secondary markets from a financial stability perspective. We find that ETF secondary markets are somewhat concentrated, but that a subset of Authorised Participants are active in both primary and secondary markets and act as a buffer between these. Only around a third of the net selling pressure in the secondary market manifests in redemptions in the primary market and this result holds across observed periods of mild market stress. However, the high yield fixed income segment may be more fragile during periods of stress.

Suggested Citation

  • Aquilina, Matteo & Croxson, Karen & Valentini, Gian Giacomo & Sun, Zhuowei, 2023. "Authorised participants as shock absorbers in fixed-income ETFs," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002696
    DOI: 10.1016/j.frl.2023.103897
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    References listed on IDEAS

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    1. Aquilina, Matteo & Croxson, Karen & Valentini, Gian Giacomo & Vass, Lachlan, 2020. "Fixed income ETFs: Primary market participation and resilience of liquidity during periods of stress," Economics Letters, Elsevier, vol. 193(C).
    2. Dannhauser, Caitlin D., 2017. "The impact of innovation: Evidence from corporate bond exchange-traded funds (ETFs)," Journal of Financial Economics, Elsevier, vol. 125(3), pages 537-560.
    3. Pan, Kevin & Zeng, Yao, 2017. "ETF arbitrage under liquidity mismatch," ESRB Working Paper Series 59, European Systemic Risk Board.
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    Keywords

    Fixed income ETF; Financial stability;

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