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Cross-border ETFs and stock market synchronization

Author

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  • Chen, Shuai
  • Li, Lingyi
  • Sha, Yezhou

Abstract

This study examines the impact of the cross-border listing of Chinese index Exchange-Traded Funds (ETFs) on the stock market synchronicity between China and the host countries. Using a quasi-natural experiment with data from 57 countries from 2005 to 2024, we find these ETFs significantly increase stock market co-movement. We identify two transmission mechanisms: the facilitation of cross-border equity capital flows and the expansion of Chinese overseas bank networks. Moreover, the positive impact on synchronicity is stronger during periods of high geopolitical risk and in countries with weak governance quality or low Chinese Outward Foreign Direct Investment (OFDI). Overall, the findings indicate that benchmark-driven investment vehicles are conduits for international financial integration and risk transmission.

Suggested Citation

  • Chen, Shuai & Li, Lingyi & Sha, Yezhou, 2026. "Cross-border ETFs and stock market synchronization," Finance Research Letters, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:finlet:v:88:y:2026:i:c:s1544612325023700
    DOI: 10.1016/j.frl.2025.109121
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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