Doctoral Dissertation Research in Economics: ETFs and Arbitrage under Liquidity Mismatch

该奖项资助将由coPI Kevin Pan进行的博士论文研究。他想了解公司债券交易所交易基金（ETF）的存在对公司债券市场的影响。这些基金通过建立授权参与者（AP）来保持流动性，这些授权参与者是唯一允许与ETF发行人进行交易以创建和赎回ETF股份的市场参与者。coPI将研究AP交易行为如何影响基础债券回报、流动性和价格波动。目的是了解ETF套利在某些情况下是否可能失败。 ETF股票由美国的个人投资者拥有;了解市场可能失灵的条件是重要的，因为市场失灵可能对许多美国人的退休储蓄产生重大影响。这些结果将对监管机构有用，他们一直担心金融压力期间ETF的流动性。 此外，由于缺乏对ETF的科学研究，个人投资者无法获得有关ETF投资收益和风险的公正信息。该项目主要旨在了解金融机构（特别是授权参与者）如何影响金融市场和资产价格。coPI将构建一个详细的面板集（1）ETF价格，持有量和套利能力，（2）ETF的AP列表，以及（3）公司债券交易和特征。这个计划是要检查几个研究问题.首先，在这个市场中，经纪自营商的中介摩擦如何影响基础公司债券收益的过度波动和联动？第二，不断变化的市场趋势和条件如何影响公司债券和公司债券ETF的市场和交易？第三，接入点如何利用创建/赎回流程来放松其库存或财务限制？这对他们在公司债券和ETF中的交易行为有什么影响，这种行为与非AP的金融中介机构的行为有什么不同？第四，ETF套利如何以及在什么情况下可能失败？失败的影响是什么？AP在失败中扮演什么角色？coPI的理论提出了一个新的传播渠道，通过AP的库存限制和ETF的流动性不匹配。coPI还将使用这些数据来测试有关该市场套利的各种理论。

This award funds doctoral dissertation research that will be conducted by coPI Kevin Pan. He wants to understand how the market for corporate bonds is affected by the existence of corporate bond exchange traded funds (ETFs). These funds maintain liquidity by establishing authorized participants (APs) who are the only market participants allowed to transact with the ETF issuer to create and redeem shares of the ETF. The coPI will examine how AP trading behavior affects underlying bond returns, liquidity, and price volatility. The goal is to understand whether ETF arbitrage might fail under certain circumstances. ETF shares are owned by individual investors in the U.S.; understanding conditions under which the market could fail is important, since a market failure could have significant effects on many Americans' retirement savings. The results will be useful for regulators, who have been concerned about ETF liquidity during financial stress. They will also be useful to the many individual investors who hold ETF shares; the lack of scientific research on ETFs means that individual investors have few resources for disinterested information on the benefits and risks of ETF investments.The project generally seeks to understand how financial institutions, specifically authorized participants, can affect financial markets and asset prices. The coPI will construct a detailed panel set of (1) ETF prices, holdings, and arbitrage ability, (2) AP lists by ETF, and (3) corporate bond trades and characteristics. The plan to is to examine several research questions. First, how are excess volatility and co-movement of underlying corporate bond returns affected by the intermediation friction of broker-dealers in this market? Second, how have changing market trends and conditions affected the market and trade of corporate bonds and corporate bond ETFs? Third, how do APs use the creation/redemption process to relax their inventory or financial constraints? What are the resulting implications for their trading behavior in corporate bonds and ETFs, and how is this behavior different than what is observed for financial intermediaries who are not APs? Fourth, how and under what circumstances might ETF arbitrage fail? What are the implications of failure and what role do APs play in this failure? The coPI's theory suggests a new channel of transmission via APs' inventory constraints and ETFs' liquidity mismatch. The coPI will also use the data to test various theories about arbitrage in this market.