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Do ETF flows increase market efficiency? Evidence from China
Author(s) -
Chen Jilong,
Xu Liao,
Zhao Yang
Publication year - 2020
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12667
Subject(s) - closing (real estate) , index (typography) , equity (law) , china , economics , econometrics , business , financial economics , monetary economics , geography , finance , computer science , archaeology , world wide web , political science , law
Focusing on the equity exchange traded funds (ETFs) in China, we demonstrate the significant effect of ETF flows on the informativeness of the ETF index. Following the novel approach proposed by Xu et al (2019a). to identify different driving forces for ETF flows, we explore whether the forward‐looking ETF flows at a day’s closing substantially improve the index’s efficiency on the next day. The mechanism behind it is inter‐market information spread: the efficiency effect of the forward‐looking ETF flows strengthens when ETFs share more new information; and the forward‐looking ETF flows increase the information flow to the ETF index on the next day.