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ETF Dividend Cycles Predict Money Market Fund Flows and Treasury Yield Changes

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  • Pekka Honkanen
  • Yapei Zhang
  • Tong Zhou

Abstract

graduallyperiodicallyExchange-traded funds (ETFs) collect approximately 7% of all U.S. corporate dividends, which they are required to redistribute to investors. How do the funds manage these dividend flows, and does such management have spillover effects on other financial markets? In this paper, we document a new stylized fact of the “ETF dividend cycle:” ETFs invest in money market funds (MMFs) when they accumulate dividend receipts and withdraw from MMFs when they distribute dividends. This cycle creates periodic liquidity shocks to MMFs and, consequently, to the Treasury markets as the affected MMFs liquidate some of their short-term Treasury holdings to satisfy ETFs’ dividend-driven withdrawals. As a result, ETF dividend cycles can explain flows to MMFs and fluctuations in Treasury yields.

Suggested Citation

  • Pekka Honkanen & Yapei Zhang & Tong Zhou, 2025. "ETF Dividend Cycles Predict Money Market Fund Flows and Treasury Yield Changes," Critical Finance Review, now publishers, vol. 14(3), pages 425-445, July.
    • Handle: RePEc:now:jnlcfr:104.00000164
    DOI: 10.1561/104.00000164
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