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Exchange-traded funds and transparency in over-the-counter markets

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  • Viet-Dung Doan

Abstract

This article explores a new channel through which exchange-traded funds (ETFs) can affect underlying asset prices. In over-the-counter markets, daily disclosure of ETF portfolio holdings increases price transparency and therefore retail investors’ bargaining power. I show that ETF-held municipal bonds have significantly lower dealer markups than observationally similar non-ETF-held bonds. This effect cannot be explained by bond selection or ETFs’ own trading activity. Rather, ETFs’ disclosure of end-of-day bond pricing is associated with lower retail markups by 5–9 basis points.

Suggested Citation

  • Viet-Dung Doan, 2025. "Exchange-traded funds and transparency in over-the-counter markets," Review of Finance, European Finance Association, vol. 29(4), pages 1043-1065.
    • Handle: RePEc:oup:revfin:v:29:y:2025:i:4:p:1043-1065.
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    File URL: http://hdl.handle.net/10.1093/rof/rfaf019
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    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
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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